ContentsJuly 2015 / Vol.32 No.363

COVER STORY

16 Labor Market Reform Becoming More Controversial than Ever

SPECIAL REPORT

30 Must-see Beauty Trade Show, Business

Festival

32 Overview of Participating Companies

36 Introduction of Exhibition Zones

FOCUS

6 Samsung Gets It amid Vulture Fund’s Stepping Up Negative Campaigns

NATIONAL

8 Korea to Reduce Greenhouse Gas Emissions 37% by 2030

9 ‘KF-X Project Could Come to a Dead End’

Airbus Selected as Korea’s Aerial Refueling Tanker

10 Guri City Signs MOU for Design Hub with Domestic Investors

11 Workplace Innovation Was the Secret

12 Incheon Free Economic Zone Gets Best FEZ Performance Evaluation

DGFEZ Authority Takes First Step to Attract Georgetown University to

Daegu

BJFEZ Authority Actively Attracts Investment

New GFEZ Commissioner to Continue Existing Projects, Emphasize Tour-

ism

14 Victoria, Korea Both Winning from KAFTA One Year In

MONEY

22 Korean Central Bank Lowers Growth Forecast Again to 2.8 Percent

23 Fitch Maintains Korea’s Credit Rating at AA-

Korea’s CDS Premium at 5-month High

24 Exports Decrease 15% Due to Overseas Production

TarifBarrierstobeLiftedon200ITProducts

26 AIIB Launches for Great Infrastructure Business Opportunities

27 Sales of Korean Large Businesses Fall Most in 12 Years

28 Korea Exchange Reorganized for Growth of KOSDAQ

8Korean government limited the emission reductions

of the industry to within 12 percent compared with

the BAU.

22Bank of Korea Governor Lee Ju-yeol announces the

Bank’s growth outlook for this year at the monthly

monetary policy meeting at the bank’s headquarters in

Seoul on July 9.

70Workers of the ISOFAR 2015 Goesan International

Organic Expo + Industry Fair Organizing Committee

talk with the potential participants in the event.

30K-Beauty Expo 2015

4

IR & MANAGEMENT

38 Hunters Aiming at Undervalued Korean Companies

39 Making Korean Companies Vulnerable to Activist Funds

ICT

40 Samsung Selects 10 Core Techs in IoT Era

Korea Has Largest Number of IoT-Connected Devices

Home Becomes Smart Environment Using IoT

42 Samsung Pay in Final Tests with 8 Local Card Firms

43 Korea, China, Japan Mobile Carriers Compete to Lead 5G

44 Small Game Makers Becoming Subcontractors to Chinese Firms

46 Korean Game Makers Take Smooth Root in Global Market

INDUSTRY

48 Unexpected Factors Driving Mobile Commerce Boom in Korea

50 Korea Maintains Top Position in 8 Products, Services

52 Supply Glut Looming Large in Semiconductor Market

Samsung, SK Hynix on Alert for China’s Possible Takeover of Micron

54 Samsung Awarded Patent for Flexible Displays for TVs

Korean LCD Industry to Beat Chinese OLED Panels

Samsung Display Hurries to Mass Produce Mirror OLEDs

Samsung to Supply OLED Displays for Next Apple Watch

56 Domestic Car Sales Showed Some Recovery in June

Foreign Cars Exceed 6% of Total Local Registered Vehicles

58 KOGAS to Design LNG Tank with

Local 3 Big Shipbuilderswith

Korea Keeps Top Spot in Ship-

building Orders for 5 Months

62 POSCO, Hyundai Steel Expand

Overseas Targeting Emerging

Markets

63 Korean Pharmaceutical Firms

Srives to Expand New Drug Tech

Exports

64 New Licenses Given to Run Duty-

free Shops in Downtown Seoul

SME

66 Venture Financing in Korea to be

Led by Private Sector

‘Hardware Startups are Key to

Creative Economy’

MICE

70 ISOFAR 2015 Goesan Expo Starts

Attracting Buyers at Home,

Abroad

71 High-level Halal Personnel to

Meet for Heavy, Harmonious

Discussions

SCIENCE

72 Tech to Maintain LCD Screens

without Data Signals

Making Electronic Skin Capable

of Detecting Harmful Gases

CULTURE

74 KoreaGrandSaletoKickOfinAugust

40% of South Korean 20-some-

things Have Had Cosmetic

Surgery

76 Providing 17 Years Services of

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Korea’s Most Influential Business Monthly Since 1983 TO OUR READERS

Advisory Board: Han Kon-ju, Kevin Khum, Kim Kook-hyun, Publisher & Editor-in-Chief: Park Jung-hwan

Managing Editor: Matthew WeigandGeneral Editor: Lee Kwang-sooCulture/Tourism Editor: Choi Mun-heeSupplementary Editor: Lee Song-hoonReporter: Cho Jin-young, Marie Kim, Chun Hyeon-jin, Jung Suk-yee, Jung Min-hee , Oh Seung-mokContributing Writers: Seok Joon, Suh Bo-yun, Gho Chang-soo Designer: Lindsay Cha

Marketing Manager: Kwon Hyuck–jinAdvertising Manager: Jung eui-jungAdministration Manager: Jung Min-hee Circulation Manager: Lim Moon-joo

Lesson from Elliott

Management’s Intervention

in Samsung C&T Merger

Elliott Management’s attempt against

the merger between Samsung C&T and Cheil

Industries has ofered much food for thought,

although it failed in the end.

First of all, it was a reminder of the vulnerability of Korean conglomer-

ates’ governance structures that hinge on cross shareholding. Similar inci-

dents can be repeated at any time if the conglomerates do not come up with

fundamental solutions.

According to the Fair Trade Commission, the owners of the top 10 busi-

ness groups in Korea are currently representing just 0.9 percent of their cor-

porate entities, while the shareholding ratio goes up to 53.6 percent when

the stocks owned by their subsidiaries, executive members, and the like are

taken into account. his means that the owners are maintaining control by

using the ailiates as a kind of leverage. In addition, shares owned by for-

eigners outnumbered those in favor of the largest shareholders in no less

than 13 out of the 186 listed subsidiaries of the 30 largest conglomerates in

the country.

Global hedge funds have targeted Korean companies based on these

weak spots. he latter have lost trillions of won in national wealth through

situations like Lone Star’s acquisition of Korea Exchange Bank, Sovereign’s

attack on the SK Group, and that of Carl Icahn on KT&G.

Under the circumstances, experts point out the necessity of measures

for the protection of management rights such as the “poison pill” idea and

disproportionate voting rights. However, such measures could end up as

special favors for conglomerates without eforts for better governance struc-

tures and shareholder-friendly policy. In the recent case, the Samsung Group

raised its dividend payout ratio to 30 percent and set up the Governance

Committee only ater Elliott Management launched a strike.

Seen from a diferent point of view, the recent incident is a sort of prece-

dent that shows Korean companies are now no longer pushovers for for-

eign speculators. Fully 69.53 percent of shareholders voted in favor of the

merger, although a close game had been expected earlier. Still, it should not

be forgotten that the result would have been impossible without domestic

institutional and individual investors wary of an outlow of national wealth.

Self-protection against foreign speculative funds cannot rely on patrio-

tism for good. Various solutions should be sought, by taking this opportu-

nity, so that conglomerates’ gover-

nance can be improved, and their

management can have a higher

level of stability.

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6

FOCUS

SEVERE ORDEAL

Samsung Gets It amid Vulture

Fund’s Stepping Up Negative

Campaigns

by Marie Kim

Samsung was under attack by the

U.S. activist hedge fund Elliott Manage-

ment. he standof pitted Samsung, a

company that controls US$270 billion in

business, including some of the most pop-

ular smartphones in the world, against an

activist investor who waged shakedown

campaigns across the globe for pure

proit. Based on Elliott’s track record, ex-

perts worried that the company’s actions

would go beyond seeking simple proits to

harm Korea’s economy as a whole with its

strong-arm inancial tactics.

On the surface, Elliott’s contention

was that the merger of Cheil Industries

with Samsung C&T undervalues Sam-

sung C&T, and, thus, Elliott argues, it was

“unfair.” But at the heart of the matter,

Elliott – the current third-largest share-

holder of Samsung C&T with a 7.12 per-

cent stake – was challenging the plan of

the conglomerate’s founding family to or-

chestrate a smooth transition of control of

the Samsung Group to Lee Jae-yong, the

son of the company founder Lee Kun-hee,

a process started ater the father sufered

a heart attack last year. Lee Kun-hee still

remains at Samsung Medical Center.

Analysts who are familiar with Elli-

ott’s past shareholder activism around the

globe criticized the move by saying that

Elliott was purposefully trying to create

conlict over the leadership succession

in the Samsung Group rather than just

pursue short-term proits. his was evi-

denced by the fund’s token investments in

other Samsung subsidiaries.

Preying on Companies

Elliott is known for taking positions

in distressed companies, such as Corn-

ing and Enron, and then exploiting such

positions for proit. When Elliot bought

Owens Corning, it was inancially dis-

tressed and being sued by workers who

were injured by asbestos. he company

iled for bankruptcy and agreed to pay

compensation to the victims. Elliot

bought Corning at next to nothing. hen,

Elliot began a campaign attacking the

workers, claiming that they were faking

their claims.

According to Professor Shin Jang-sup

of Singapore University, who has dug up

previous merciless activism pursued by

Elliot comments, “[Elliott  made] legal,

political, and PR attacks on the dying

workers, which chiseled away the com-

pensation expected to be paid by the as-

bestos companies, boosting the irms’ net Paul Singer, CEO of Elliott Management, at the Annual Meeting 2013 of the World Economic Forum in Davos, Swit-

zerland, January 23, 2013. (Photo by World Economic) Forum via Wikimedia Commons)

8

worth. Elliot then lipped Corning, selling

it for a near-billion-dollar proit.”

Preying on Countries

But the attention of this inancial or-

ganization may have been more than just

a conglomerate-wide problem for Sam-

sung. It could have possibly threatened

Korea itself. It wouldn’t be the irst time

that the company has gone ater a coun-

try – Elliott brought Argentina to its latest

default, as it is currently embroiled in an

activist battle there as well. In a 10-year-

long campaign against the Argentinian

government, Elliot has sought to enforce

U.S. court judgments against the country

for its 2001 default on US$95 billion of

debt. Elliott sued the Argentinian govern-

ment for full repayment and won judg-

ments worth US$1.7 billion from a U.S.

court, which Argentina refuses to pay.

Actually, Elliott is famous for taking

advantage of the vulnerability of govern-

ments with distressed national economies.

To achieve its target, Elliott has deployed

various and sometimes unthinkable tac-

tics, earning the nickname “vulture fund”

in the inancial community.

In the past, Elliott targeted distressed

debt in countries where governments

have been struggling to repay it. Elliot

bought the defaulted debts at large dis-

counts, then either sold them for a proit

when the country’s circumstances im-

proved or sued for full payment. his hap-

pened with Peru and Argentina.

In Peru, Elliott bought US$20.7 mil-

lion worth of defaulted loans made to Peru

for a deeply discounted price of US$11.4

million. Elliott then iled a lawsuit against

the Peruvian government in a New York

court for the original amount of the loan,

plus interest. Elliott won a US$58 million

settlement and made US$47 million in

proits.

he Argentinian case revolves around

a decade-long legal ight between the Ar-

gentine government and a group of hedge

funds led by Elliott. Elliot purchased

US$630 million of bonds as the country

was headed for default in 2001 for a re-

ported US$48 million, about 7 percent

of the value. It then and demanded that

Argentina pay US$2.3 billion, including

unpaid interest.

Elliott won a judgment from a New

York court worth US$1.6 billion, but the

Argentinian government refused to pay.

In 2012, Elliott made an unthinkable

move. It coniscated an Argentine naval

vessel, the Libertad, which was anchored

in Ghana, and persuaded one of the coun-

try’s judges to hold the vessel in port until

Elliott was paid the debt owed.

Samsung Faced Same Tactics

Elliott is able to wage these sorts of

agenda-based inancial moves across the

globe because Paul Singer, CEO of Elli-

ott, is a former lawyer from Harvard Law

School and knows the details of the U.S.

legal system’s loopholes. He is also known

to have strong connections with U.S polit-

ical and legal elites.

In the battle with Samsung in Korea,

Elliott started to ramp up pressure on the

company by irst iling a lawsuit.  Elliott

Management iled an injunction against

Samsung C&T with the Seoul Central

District Court, claiming that the stock

valuation ratio of 1:0.35 applied to Cheil

Industries and Samsung C&T for the

merger would incur losses for Samsung

C&T shareholders. It sought to prevent

the proposed takeover from going ahead

at the shareholders meeting.

In its second legal action against Sam-

sung C&T, Elliott sought to bar Samsung

C&T from selling its treasury shares to

chemicals maker KCC Corp., a friendly

party to Samsung C&T. Elliott claimed

that this was a move to bolster its hand

at the shareholders’ meeting and was also

“unfair.”

Korean courts ruled against Elliott in

the both cases, allowing the shareholder

vote on the merger to proceed, and also

declining to block Samsung C&T’s sale of

treasury shares to KCC.

Elliott intensiied the Samsung merger

battle, even ater losing twice. First, Elliot

iled an appeal against a court ruling in

favor of the proposed merger.  Subse-

quently, Elliott acquired stakes in two

other companies in the group: 1 percent

each of Samsung Fire & Marine Insurance

and Samsung SDI. Both of these compa-

nies owned stakes in Samsung C&T. Sam-

sung Fire & Marine owned 4.8 percent of

the construction company, and Samsung

SDI held 7.4 percent. With this purchase,

Elliott tried to gain the standing to raise

formal complaints with the two compa-

nies’ boards on how they voted on their

shares. Elliot also called on other share-

holders to vote against the merger deal at

a meeting scheduled for July 17.

69.53% of Samsung Shareholders

Vote Yes

he merger needed a two-thirds ma-

jority of voting shareholders to succeed.

Elliott had a 7.12 percent stake in Sam-

sung C&T, and foreign investors includ-

ing Elliott held about another third. A key

swing vote was Korea’s National Pension

Service, which owns a 9.98 percent stake.

At a shareholders’ meeting on July 17,

Samsung shareholders backed the pro-

posed merger deal with Cheil Industries.

A total of 69.53 percent of Samsung C&T

shareholders approved the merger, which

was an essential element of the reorgani-

zation plan of Samsung under the con-

trol of Lee Jae-yong. At the shareholder

meeting, shareholders representing 84.73

percent of all shares cast votes, and 69.53

percent voted yes to the merger. Secur-

ing a 16.5 percent stake, Lee Jae-yong,

vice chairman of Samsung Electronics,

emerged as the largest shareholder of the

merged entity. “his approval is huge for

us. Samsung C&T won’t forget the sup-

port of retail investors, and as CEO, I

promise that the company will improve

shareholder value and their rights,” C&T

President and Co-CEO Choi Chi-hun

said.

In the meantime, some industry

watchers said that Elliott could ile an in-

vestor-state dispute (ISD) and ile a law-

suit against the Korean court in the U.S.

in the future if Elliot’s injunctions are not

accepted in the local court. If Elliott’s pur-

pose is to cause conlict in the Samsung

Group, they are likely to prolong any legal

battle.

FOCUS

9

Korean government limited the emission reductions of the industry to within 12 percent compared with the BAU.

PURCHASING CARBON CREDITS

Korea to Reduce Greenhouse

Gas Emissions 37% by 2030

by Jung Suk-yee

The government has inalized its

2030 target of reducing greenhouse gas

emissions by 37 percent compared with

Business As Usual (BAU). During a Cab-

inet meeting held on June 30, the govern-

ment announced a plan to reduce green-

house gas emissions by 37 percent from

BAU levels by 2030. he reduction plan

was submitted to United Nations Frame-

work Convention on Climate Change

(UNFCCC) secretariat on the same day.

Prime Minister Hwang Kyo-ahn said,

“Considering the fact that South Korea

has been playing a leading role in ight-

ing climate change in the international

community, we set a higher target than

the previous four plans.” However, the

announcement came only 19 days ater

the government outlined four scenarios

for the country’s emissions target on June

11, and the ith scenario was suddenly

decided without accommodating specu-

lation. Accordingly, there has been crit-

icism that the government handles this

new climate change system with more

haste than caution.

At the brieing at Sejong Government

Complex on the same day, South Korean

Environment Minister Yoon Seong-

kyu said, “Once the new climate change

system is decided in the U.N. Climate

Change Conference being held in Paris at

the end of this year, we will come up with

detailed plans to reduce greenhouse gases

emissions by sector and industry.” Ac-

cordingly, the earlier plan in 2009 to cut

greenhouse gas emissions by 30 percent

in 2020 was abrogated.

he inal plan submitted to the U.N.

is to accomplish the target goal by intro-

ducing the third from the existing four

scenarios to reduce 25.7 percent, but

purchasing global carbon credits equiva-

lent to the other 11.3 percent through the

international market mechanism (IMM),

which will be formed in the future. Ex-

perts pointed out that the emission rights

will eventually be paid with taxpayer

money, whether the government or busi-

nesses shoulder the burden.

Considering that the nation’s eco-

nomic structure is focused on the manu-

facturing industry, however, the govern-

ment limited the emission reductions of

the industry to within 12 percent com-

pared with the BAU. Instead, the govern-

ment plans to most reduce the power gen-

eration and transportation sectors, which

emit a large amount of greenhouse gases.

As the industrial circles are strongly re-

sisting the plan, citing that it is physically

impossible to reduce emissions by 12 per-

cent, however, aterefects are expected.

In the meantime, Korea’s oil con-

sumption per capita added up to 18.3

barrels last year, to rank ith in the world.

During the same period, Korea ranked

sixth in oil reining capacity.

According to BP’s Statistical Review

of World Energy released on July 15,

the daily average of the international oil

consumption increased 0.9 percent year-

on-year in 2014 to reach 92.09 million

barrels.

he United States’ and China’s daily

averages amounted to 19.04 million bar-

rels and 11.06 million barrels, respec-

tively. Korea ranked eighth with a daily

average of 2.46 million barrels.

When it comes to the amount of con-

sumption per capita based on the popula-

tion estimated in July, Singapore took the

top spot by recording 83.5 barrels. It was

followed by Saudi Arabia (42.5 barrels),

Canada (24.8 barrels), the United States

(21.8 barrels), and Korea (18.3 barrels).

It is thought that the best part of the

petroleum consumed in Korea was for in-

dustrial purposes. he high consumption

per capita is attributable to its industrial

structure in which petroleum products

are exported based on the import of crude

oil. he high level of consumption is also

because of its particularly high depen-

dence on oil as an energy source.

NATIONAL

10

The Korean Fighter Experimental (KF-X) project of the

ROK Air Force could come to a deadlock without key technology

transfers from the United States. However, the Defense Acquisi-

tion Program Administration (DAPA) is claiming that it is not

going to happen, because it has the option of technology transfer

from a third country.

“he sotest spot of the KF-X project is the export licensing

policy of the U.S.,” said Choi Jong-kun, a political science and

diplomacy professor at Yonsei University, on July 14, adding, “If

Korea had to do it on its own due to a lack of technology transfer,

the project would not be able to be completed as scheduled.”

DAPA signed an ofset agreement in Oct. last year with Lock-

heed Martin to be supplied with key technology for the project.

At present, the export licensing procedure is underway in the

U.S. government. It is said that the U.S. government is unwilling

to provide the four key techniques, including the active electron-

ically scanned array (AESA) radar. DAPA said that it would meet

the schedule by continuing to talk with the U.S. and cooperating

with a third country just in case.

According to the professor, the U.S. might keep its key tech-

niques to itself due to the presence of Indonesia, an Islamic coun-

try, in the project. “If Indonesia withdrew from the project in that

state, problems could arise in the form of budgetary burdens and

a reduction in the scale of the project,” he continued.

The Korean Air Force selected Airbus Defense and Space’s

A330 Multi Role Tanker Transport (MRTT) as its irst aerial re-

fueling tanker.

On June 30, the 89th Defense Acquisition Program Executive

Committee meeting chaired by Defense Minister Han Min-koo

chose Europe’s Airbus D&S A330 MRTT over Boeing’s KC-46A

and Israel Aerospace Industries’ (IAI) B767 MMTT.

he price of the Airbus D&S A330 MRTT was at least 15 per-

cent higher than that of the Boeing KC-46A, but its price went

down due to the recent weak euro. Besides, the European aero-

space and defense corporation ofered outstanding prices, ight-

ing for orders with Boeing.

he Airbus A330 MRTT is an aerial refueling tanker aircrat

based on the civilian Airbus A330. It is the largest among its com-

petitors and is also designed as a dual-role air-to-air refueling and

transport aircrat. he A330 MRTT has a maximum fuel capacity

of 111 tons on the body and the wing. It can also carry up to 266

passengers and 37 tons of cargo.

he deal to procure four in-light refueling tankers will be

worth 1.4880 trillion won (US$1.33 billion), including 1.2 tril-

lion won (US$1.07 billion) for the aircrat and 200 billion won

(US$179.16 million) for the construction of facilities such as han-

gars and runways. he Air Force initially planned to purchase

air refueling tankers from 2017, but rescheduled it ater 2018 as

it failed to secure the budget as planned. he Air Force will pur-

chase a total of four aerial refueling tankers – two in 2018 and

another two in 2019.

EXPERIMENT FAIL

‘KF-X Project Could

Come to a Dead End’

An artist’s depiction of the KF-X ighter when it is completed.

by Jung Suk-yee

UPGRADING DEFENSE

Airbus Selected

as Korea’s Aerial

Refueling Tanker

The Airbus D&S A330 MRTT.

NATIONAL Defense

11

NATIONAL

DESIGN HUB QUEST

Guri City Signs MOU for Design

Hub with Domestic Investors

The Guri World Design City Project includes this vision of Guri as the hub of the design industry in Asia.

by Marie Kim

Guri City has signed an MOU with

local construction companies that are

participating in the Guri World Design

City Project (GWDC) on July 9.

Park Young-soon, mayor of Guri City

in Gyeonggi-do, hosted a ceremony for

the development project at the Guri Art

Hall on July 9. Nine investors attended the

event.

In a bid to make Guri the hub of the

design industry in Asia, Guri City has

pursued the GWDC project for 8 years.

For the successful implementation of the

project, Guri City has recruited 7 con-

struction companies – Hyundai Con-

struction Inc., GS Construction Inc.,

POSCO A&C Inc., Hoban Construction,

Seohui Construction Inc., Shindonga

Inc., and Kunyoung Inc. – and Bukuk Se-

curities Co. and Korea Asset Trust Co as

strategic investors.

At the event, Guri City, the Guri Ur-

ban Corporation, and K&C Inc. signed

an MOU with the above-mentioned 9

companies on the GWDC. In prepara-

tion for the end of regulatory restrictions

associated with Greenbelt policy, govern-

ment oicials, companies, and investors

all agreed to cooperate on conditions of

strategic investment and construction ar-

eas for investment.

Mayor Park Young-soon said, “he

local economy has been stagnant lately,

and the city has been in desperate search

for a new engine of growth,” adding, “he

GWDC project represents a signiicant

opportunity.” Once launched, the GWDC

will create as many as 11 million jobs in

design, services, logistics, tourism, and

other areas, and will accommodate at a

minimum of 2000 global companies. “I’m

certain that in the not-too-distant future,

Guri City will become a world class de-

sign city,” said Mayor Park. A CEO of a

construction company attending the

MOU signing ceremony added, “I feel

proud to be a part of the government’s vi-

sion for the creative economy, which will

also represent the second miracle of the

Han River.”

On March 19, the Central City Plan-

ning Commission of the Ministry of

Land, Infrastructure and Transportation

(MOLIT) announced the “conditional”

end of Green belt restrictions at the 7th

deliberation. In response, from July to

August, Guri City is planning on induc-

ing foreign investment corporations to

establish their presence in the city, and

it also set out to attract foreign capital of

a certain amount. As the review of the

Ministry of Government Administration

and Home Afairs and Multilateral Agree-

ment on Investment is approaching, these

MOUs with construction companies and

strategic investors will have a positive im-

pact.

Currently, Guri City is taking nec-

essary measures to end the Greenbelt

restrictions. As a irst step, the city is

signing MOUs with such organizations

and groups as the Korea Federation of

Design Association, Urban Design Insti-

tute of Korea, and Seoul Institute of Arts.

A spokesperson for Guri City said, “he

City will make every efort towards that

goal.”

he GWDC development project

that Guri City is promoting is a brand

new type of design industry, as its focus

is placed on the combination of features

of hospitality and design industries and

promote the Meeting, Incentives, Con-

ventions, and Exhibitions (MICE) indus-

try. Guri is intent on pioneering this new

vision among many Asian countries.

Once this project is completed, Guri

plans to host 500,000 medium and large-

sized EXPOs with its focus on construc-

tion and interior design. he city expects

that such events will bring at least 180

million foreign visitors every year with

an economic impact of 7 trillion won

(US$6.2 billion). he project will help

make Korea a center of hospitality and

design. Overall, the project will drive the

second miracle of the Han River.

Guri City Mayor Park Young-soon.

Local Autonomy

12

The Ministry of Strategy and Fi-

nance gave Korea Asset Management

Corporation (KAMCO) an A grade for

its excellent management in 2014. At the

end of 2013, net proits were posted as

51 billion won (US$46 million), but by

the end of 2014, net proits increased 1.7

times, marking 93.9 billion won (US$81.2

million). KAMCO attributes this feat to

innovation at the workplace that all staf

collectively strove for.

he year 2014 marked one of the

most dynamic years in the history of

KAMCO. Of its 50 year establishment,

the post-1997 IMF crisis and the 2008

global inancial crisis were the two most

important periods that cemented the im-

age of KAMCO in the public mind. Af-

ter the IMF crisis, KAMCO cleaned up

non-performing loans (NPL) of troubled

companies by providing debt consolida-

tion funds. With the onset of the global

inancial crisis in 2008, KAMCO preemp-

tively responded by issuing restructuring

funds in an efort to save Korea from fall-

ing victim to a domino efect triggered by

panic in the global stock market. he year

2014 presented another turning point

for KAMCO, as it had to reposition itself

from the emergency mode designed to

cope with two big crises and move on to

redeine its new mission.

he inauguration of current Presi-

dent Hong Young-man coincided with

this timing for change. President Hong

proposed “communication, unity, ethics,

and professionalism” as the key concepts

that KAMCO has focused on under his

leadership.

First, President Hong launched a

contest titled “Restarting KAMCO In-

novation Project” in Feb. 2014. hrough

this initiative, the president requested a

submission of innovative ideas from staf

members. he central idea behind the

event was to encourage staf members to

actively participate in the search for new

directions and organize them into catego-

ries to build a foundation. In reality, this

initiative also translated into improving

procedural eiciency at the workplace.

As a result, KAMCO succeeded in im-

proving its productivity and management

eiciency. Compared to 2013, quarterly

net proits increased 76 percent, generat-

ing 93.9 billion won (US$811 million), up

from 51 billion won. KAMCO established

an emergency committee speciically fo-

cusing on planning debt reduction and

regularly checking on the progresses on

the “debt reduction” project. As a result,

compared to the previous year, KAMCO

reduced its debt-to-equity ratio by 53 per-

cent, which is translated into 6.289 tril-

lion won (US$5.437 billion) in amount.

he Restarting KAMCO Innovation

Project is comprised of four areas of inno-

vation: business, manpower organization,

management, and social responsibility.

For business innovation, KAMCO

worked to enhance its new identity

as a public asset management agency.

KAMCO also expanded the scope of un-

derwriting public bonds. It also institu-

tionalized the sales of public bonds.

In addition, KAMCO worked to efec-

tively organize manpower. First, KAMCO

expanded its scope for outsourcing tasks

that have little relevance to the original

purpose of the organization, such as col-

lecting national taxes.

Via a vast amount of information

about inancial support, state asset man-

agement, and employment, KAMCO

began to provide customized services for

the public. As a irst step, KAMCO set up

an online site called “KAMCO Square.”

At the organizational level, KAMCO

launched a committee called “DOT in-

novation”. Made with irst letters from

“Daily,” “On the Spot,” and “Together,” the

acronym DOT is designed to foster open

dialogue in the workplace. he commit-

tee proved to be an irreplaceable body,

especially ater the oice moved to Busan.

he committee ofers staf a venue to raise

day-to-day concerns and ways to help

them adapt to new environments.

CEO Hong Young-man regularly sent

out emails to all employees to communi-

cate his business philosophy. his direct

manner of communication is said to en-

hance unity and togetherness.

Noticeable innovation occurred in

personnel management, too. Staf are

introduced to a participatory personnel

management culture. Open communi-

cation between management and labor

helps narrow the diferences on lowering

the cost of fringe beneits. KAMCO also

extended the scope of a lexible employ-

ment policy. For instance, the number

of employees working lexible hours or

working from home increased from 75 to

170.

Improving fairness and transpar-

ency in the recruiting process, KAMCO

shited its focus from titular qualiications

to work experiences and competencies on

the ground. As a result, KAMCO broad-

ened its recruitment pool to include high

school graduates (24 percent), women (48

percent), engineers (14 percent), and lo-

cal candidates from Busan (44 percent).

CEO of KAMCO Hong Young-man.

MANAGEMENT REWARDED

Workplace Innovation Was the

Secret

by Marie Kim

NATIONAL Innovation in Public Company

13

NATIONAL

NUMBER ONE

Incheon Free Economic Zone Gets Best FEZ Performance Evaluation

The Incheon Free Economic Zone

(IFEZ) has topped the national free eco-

nomic zones (FEZ) in an evaluation over-

seen by the Ministry of Industry for its

performance during 2015.

On the 24th, the Ministry of Com-

merce, Industry and Energy (MOCIE)

launched the 79th committee for eco-

nomic free zones and inalized the eval-

uation of free economic zones for 2015.

According to the MOCIE, the evalu-

ation targeted FEZs in Incheon, Busan/

Jinhae, Gwangyang Bay, Daegu, Yellow

Sea, Saemangeum/Gunsan, and Chung-

buk, Incheon was ranked irst, followed

by Gwangyang Bay. he Busan/Jianhae

FEZ made third.

In the 5 areas of business, organiza-

tional management, development proj-

ects, investment, and residential envi-

ronment, the IFEZ received the highest

scores. Only in the area of business sup-

port did Gwangyang FEZ score highest.

According to the IFEZ, it raised

US$1.714 billion of foreign direct in-

vestment (FDI), despite unfavorable

The newly-built Songdo International City in Incheon

Free Economic Zone.

by Marie Kim

economic conditions, due to the global

economic downturn last year. his invest-

ment feat marks an 81.9 percent increase

from 2013. he amount also represents 94

percent of total FDI in all FEZs in Korea.

In addition, by creating another 136,000

jobs, the IFEZ contributed signiicantly to

boosting the local economy.

In March of last year, as prestigious

universities like George Mason Univer-

sity, University of Utah, and Ghent Uni-

versity opened in the IFEZ, it rose to

prominence as a global education hub. In

fact, the MOCIE previously pointed it out

as an exemplary case for attracting invest-

ment.

he IFEZ is gaining momentum for

more investments and development proj-

ects. In March of last year, the Ministry

of Culture, Sports, and Tourism gave the

green light to the development of a for-

eigner-only casino led by the Lippo and

Caesar Consortium (LOCZ Korea), a

venture between Chinese and American

companies. In Nov., construction compa-

nies broke ground to build Paradise City.

Hong Kong investment group CTF sub-

mitted a letter to express its intention to

invest.

In Cheongna International City, con-

struction companies started building the

Hana Financial Town in Oct. last year.

With no bidders to come forward, IFEZ

decided to lead the project to build the

landmark project, the City Tower.

Diicult issues are also being resolved

one ater another. Controversies around

the construction of a Korean-Ameri-

can town are now resolved. Also, the 6.8

district development project, which had

been on the verge of nulliication, is now

back on track.

Deputy Head Kim Jin-yong said, “IF-

EZ’s continuous eforts and strong will to

construct a world-class residential envi-

ronment made it possible for IFEZ to rank

No. 1 in the evaluation for performance,”

adding, “We will continue to work hard

until we will join the world’s top 3 FEZs.”

he FEZ that is ranked number one

in the evaluation is awarded 520 million

won (US$443,554).

MOU SIGNED

DGFEZ Authority Takes First Step to Attract Georgetown University to Daegu

by Cho Jin-young

Front row, from left to right: Sohn Kie-cheul, president of

CIMI; Robert Clark, Dean for Research at Georgetown Uni-

versity Medical Center; Lee Han-gu, National Assembly;

and Do Gun-woo, commissioner of DGFEZ Authority.

Front row, from let to right: Sohn

Kie-cheul, president of CIMI; Robert

Clark, Dean for Research at Georgetown

University Medical Center; Lee Han-gu,

National Assembly; and Do Gun-woo,

commissioner of DGFEZ Authority.

DGFEZ also signed a memorandum

of understanding (MOU) at Georgetown

University in Washington, D.C. on July 8

(local time) to establish a medical school

in Daegu.

Attended by Lee Han-gu, member of

the National Assembly, who has made ef-

forts to ready systems and secure a budget

in a bid to create MediCity Daegu and set

up the Comprehensive and Integrative

Medical Institute (CIMI) for the last 10

years, DGFEZ Authority Commissioner

Do Gun-woo, Georgetown University

Medical Center Dean Robert Clark, and

CIMI President Sohn Kie-cheul signed

the MOU to establish graduate courses,

promote educational and research coop-

eration in the medical sector, push health

care provider and patient exchange pro-

grams, and activate the medical care in-

dustry.

Founded in 1789, Georgetown Uni-

versity is one of the best universities in

the world. It ofers undergraduate courses

in 16 sectors, including law and medicine,

and has 1,300 full-time academic staf.

Free Economic Zone

14

THEME PARK DEVELOPMENT

BJFEZ Authority Actively Attracts Investment

Heo Seong-gon, commissioner of the Busan-Jinhae

Free Economic Zone Authority.

by Cho Jin-young

Busan Jinhae Free Economic Zone

Authority (BJFEZ Authority) Commis-

sioner Heo Seong-gon is making every ef-

fort to directly attract investment in a bid

to improve investment attraction perfor-

mance and successfully push ahead with

the Ungdong Global heme Park Project.

In order to achieve tangible invest-

ments, Huh met oicials from the na-

tion’s leading conglomerates, including

Hanwha, Lotte, and Doosan, the Bank

of China, and the European Chamber of

Commerce in Korea (EUCCK) in Seoul

for two days from June 16 to 17 to attract

investment.

For stable promotion of the Ungdong

Global heme Park Project in Jinhae, he

discussed various investment and cooper-

ation plans such as the joint investment of

the nation’s large companies and foreign

investors in a whole project, and partial

investment of large companies in the ho-

tel, shopping mall, water park, and resort

sectors, where they have accumulated ex-

pertise through their businesses at home

and abroad.

In the meeting, Huh stressed that the

BJFEZ is in the center of Korea’s major in-

dustries of shipbuilding and automobiles,

and also of the world’s three economic

development axes, since it is less than

three hours away from 60 cities with a

population of more than 1 million. Also,

he asked Chinese companies in the met-

ropolitan area and the EUCCK’s member

companies to invest in the zone and the

creation of Myeongji International City.

Ater being elected as the ith BJFEZ

Authority Commissioner on March 12,

Huh has reformed the authority and

worked intensively to make the BJFEZ a

creative global economic zone with the

100-day goal of “the world’s best distribu-

tion and business center realization.”

In particular, the BJFEZ Authority

will invite the EUCCK’s CEO and ex-

ecutives to an investment promotion

meeting, which is scheduled to be held

at Haeundae Nurimaru from Sept. 18, to

aggressively promote the strengths of the

zone and irmly lay a foundation for in-

vestment.

The Gwangyang Bay Area Free

Economic Zone (GFEZ) Authority has

appointed a new commissioner, Kwon

Oh-bong, and held his inauguration cer-

emony on July 6.

Kwon Oh-bong said that he will con-

tinue the existing developmental plans of

the zone without any disruptions.

While developing the strategies for

domestic and foreign investments induc-

tion to the zone, he will also develop a

systematic cooperative relationship with

the companies investing in the zone, via

regularly inspecting any problems busi-

nesses have, and developing solutions to

the problems, he said.

He also said that he will develop the

cultural tourism businesses of the zone.

He plans to develop the cultural tourism

business as an industry by developing

networks among the regions of the zone,

as well as developing world-class accom-

modation facilities.

Kwon Oh-bong was born in 1959 in

Jeollanam-do, Jangheung, and educated

at Korea University, receiving an econom-

ics undergraduate degree. He passed the

administrative examination, and became

a governmental oicial in 1983. Since

then, he worked as the director of inan-

cial planning and budget analysis, vice-

chief of the Defense Acquisition Program

Administration, and economic lieutenant

governor of Jeollanam-do.

The GFEZ Authority’s new Commissioner, Kwon Oh-

bong, at his inauguration ceremony on July 6.

STEADY SAILING

New GFEZ Commissioner to Continue Existing Proj-ects, Emphasize Tourism

by Cho Jin-young

he university ranked 20th in the U.S.

News annual ranking of America’s top

colleges in 2014.

CIMI is a foundation set up under the

auspices of the government and Daegu

City. It has recently completed the con-

struction of an integrative medical cen-

ter in Daemyeong-dong, Daegu, and is

expanding interchange cooperation with

Harvard University and Georgetown Uni-

versity, which globally stand out in the in-

tegrated medical sector.

Once the branch school of George-

town University is opened in Suseong

Medical District, which is located nearest

to the center of the city among other free

economic zones in the nation and has a

favorable environment in which to settle,

Daegu will have a strong advantage to

attract students at home and abroad and

a golden opportunity to improve the re-

gion’s brand power as a MediCity.

Also, it will have a great ripple efect

to make a medical breakthrough in the

region due to the inlux of the best medi-

cal technology and talent in the world.

he DGFEZ Authority is planning

to visit the related government depart-

ments, including the Ministry of Trade,

Industry and Energy and the Ministry of

Education, as soon as possible to explain

the plan to attract graduate schools, and

make every efort to secure inancial sup-

port from the government.

15

NATIONAL

Patrick Stringer, commissioner for Victoria to the Republic of Korea

CHEESE, WINE, GOOD EDUCATION

Victoria, Korea Both Winning

from KAFTA One Year In

by Matthew Weigand

Australia is becoming a more im-

portant trading partner for South Korea,

even with the KAFTA between the two

countries a little more than a year old.

Business Korea was able to sit down with

Patrick Stringer, Commissioner for Vic-

toria to the Republic of Korea, and speak

with him about the relationship between

South Korea and Australia’s most popu-

lous state. Patrick has served for 10 years

representing Australian trade in Asia in

Hanoi, Shanghai, and now Seoul. What

follows are excerpts from the full inter-

view.

What is the primary goal of the Vic-

torian Government Business Oice in

Korea?

Korea is our 5th largest trading part-

ner, but if you ask the average Korean on

the street “Do you do business with Aus-

tralia?” most would say no. And, in fact,

if you asked the same question in Mel-

bourne you’d have the same response.

Victoria’s economy is larger than

Singapore, New Zealand, Ireland, or the

Philippines. While we’re only 3 percent of

Australia’s landmass, we are 22 percent of

its GDP. Victoria established its Shanghai

trade oice in 1905, so we have been in

the business of international trade and

representing our own interests for well

over 100 years.

What Korean goods are most popular

in Victoria in particular or Australia

in general, and vice versa?

For Korea, obviously Samsung,

Hyundai, all those electronics products,

and obviously automobiles do very well

in Australia.

Conversely, Koreans probably eat a

lot more Victorian food than they think.

Victoria produces 80 percent of Austra-

lia’s dairy. Meat is another big one. Victo-

ria is also Australia’s greatest exporter of

processed food, like biscuits, spaghetti, or

prepared foods of any kind that say made

in Australia. Also, a lot of wine. It’s one

of the areas where we under-perform in

the Korean market, unfortunately. Only

3 percent of imported wines in Korea

come from Australia. It should be 10-12

percent.

And, of course, the elephant in the

room is education, which is Victoria’s

largest international export. International

students studying in Victoria is our larg-

est export.

Do Australian and international stu-

dents pay diferent rates for univer-

sity?

No, full fee paying students pay the

same no matter where they’re from. But

because of our tax system, many Aus-

tralians don’t pay full fees; they pay on a

schedule of fees. And also Australians can

get federal student loans.

One of the things Melbourne is

known for is being ranked number two

on the Best Student Cities put out by the

QS Best Student Cities 2015 list. Paris,

Melbourne and London are the top three.

Melbourne is always in the upper ech-

elon of student-friendly international

university towns. We have the best tram

network in the world, and it is even free

for students in the Central Business Dis-

trict. We’ve got more than four univer-

sities there. Monash is the number one

modern university in the world, mean-

ing among universities established ater

World War II. It’s usually ranked one or

two. And the University of Melbourne is

Australia’s top-ranked university, which

has produced a number of Nobel Laure-

ates in several ields, and is consistently

ranked among the top 30 universities in

the world.

Last year, there was AUS$1.86 billion

of goods going to Victoria from South

Korea, and only AUS$1.1 billion of goods

coming to Korea from Victoria. What do

you think about this trade deicit on Vic-

toria’s part?

Not worried in the slightest. We take

a long-term view. People will get very tied

up in the numbers, but you can never see

international trade as a zero sum game.

For some period, Korea might have a

favorable balance of trade with Victoria,

and Victoria might have a favorable bal-

ance in another period. In the end the im-

portant thing is to have healthy, vibrant,

multiple channels of trade between two

countries where neither side is creating

non-tarif barriers at the border. he de-

mands of each economy will draw upon

what it needs at the time.

Free Economic Zone

16

COVER STORY

Labor market reform is emerging as

a hot issue in Korea. At irst, it was pro-

gressing based on a tripartite agreement

between the government, employers, and

the labor community. However, the tri-

partite talks hit against the wall, as worker

representatives accused the other parties

of trying to let go of existing employees

and hire more temporary workers.

At present, the biggest controversy

consists in the introduction of a wage

peak without the consent of a trade union

and general dismissal guidelines. Wage

peaks were brought in ater the IMF bail-

out in 1997, but only 9.9 percent of Ko-

rean companies adopted it until the end

of last year. It recently came into the lime-

light again as the mandatory retirement

CONCESSION NEEDED

Labor Market Reform Becoming More

Controversial than Ever

by Jung Suk-yee

age extension to 60 began to be pursued.

he business community expressed con-

cerns over an increase in labor costs to

follow the retirement age extension, and

the government came up with the wage

peak as a solution for cost reduction and

job creation.

A private company’s rules of employ-

ment have to be modiied based on the

consent of the majority of its employees,

or their trade union, for a wage peak to

be adopted. However, the government is

planning to move ahead with it based on

the Supreme Court ruling that the rules of

employment can be altered whenever do-

ing so is socially reasonable. Meanwhile,

employees are claiming that the wage

peak serves the interests of no one but the

management, because most retire in their

early 50s, and few can work beyond that

time in the current employment system.

he general dismissal guideline issue

has to do with labor market lexibility and

Article 23 of the Labor Standards Act that

stipulates an employer cannot dismiss an

employee without good reason. he gov-

ernment’s plan is to revise it and include

a disciplinary dismissal and layof into

the scope of general dismissal. “Tempo-

rary workers are discriminated against

when regular workers are over-protected,

and employees with poorer performance

should not get in the way of non-regular

workers wishing to get a full-time job,” it

explained.

he labor community, however, pre-

18

dicts that the revision will result in a larger

number of temporary workers, because it

will facilitate employee dismissal based

on the arbitrary decisions of employers.

“According to Statistics Korea’s oicial

data, the number of temps has increased

from 5.45 million to 6.07 million since

2006, when the bill for protecting them

was enacted, and the ratio of their wages

to full-time workers’ wages has dropped

from 62.8 percent to 55.8 percent during

the same period,” it claimed.

Government’s Reform

Driving

he Korean government and the rul-

ing Saenuri Party set labor reform as their

top priority for the second half of this

year.

In this context, they are going to be in

pursuit of labor market lexibility, a wage

peak, and the co-prosperity of large and

small companies so as to prevent adverse

factors such as the wide gap between the

wages of regular and non-regular workers

and a youth unemployment rate of over

10 percent from exacerbating declines in

productivity, household income, domes-

tic consumption and so on.

“We need to tackle economic inei-

ciency if we are to renovate the domes-

tic economy, and this can’t be done with

labor reform,” ruling party leader Kim

Moo-sung said at the supreme council

meeting held in his oice in the National

Assembly on July 20, adding, “During the

rest of this year, I will concentrate my re-

sources on the cause for the future of my

country, even if those who are opposed to

the labor market reform opt to turn their

backs on me in the upcoming general and

presidential elections.”

According to the ruling party, polar-

ization between employees is one of the

most serious problems that Korean soci-

ety is facing. It is planning to work harder

to narrow the gaps between large and

small companies, regular and temporary

workers, the middle-aged and the young,

males and females, the highly-educated

President Park Geun-hye met with the leadership of the ruling Saenuri party recently in the

Presidential Oice on July 16. They agreed to the urgency of the reform of the labor market.

and the rest.

he head of the ruling party recently

met with President Park Geun-hye. hey

agreed to the urgency of the reform of the

labor market. he President also asked

him to strive for it so the government’s re-

form drive in its third year can bear fruit.

Political Pit Fight

However, the government and the

ruling Saenuri Party are colliding with the

opposition party again over labor reform.

he ruling party strongly advocates the

urgent necessity of reform, while the op-

position party criticizes it as a measure to

exacerbate generational conlicts.

At a supreme council meeting held

at the National Assembly in the morning

of July 22, ruling party leader Kim Moo-

Korea’s National Assembly building.

sung mentioned that labor reform is an

inevitable national task. “he purpose of

labor reform is to get rid of unreasonable

discrimination between permanent and

temporary workers, seek better ways for

the co-prosperity of large and small com-

panies, and ensure that the young and the

elderly lourish together,” he said, adding,

“It does not require the labor communi-

ty’s unilateral sacriice at all, and I hope

the opposition party will be more cooper-

ative with regard to this issue.”

Ruling party supreme council mem-

ber Lee In-je continued, “We have looked

forward to voluntary labor reform based

on the tripartite committee, but 20 years

of time has already passed in vain. I be-

lieve that now is the time for us to move

ahead with it under the leadership of the

government.”

COVER STORY Labor Reform

19

COVER STORY

In response, the opposition party

claimed that labor reform cannot be a

fundamental solution to youth unem-

ployment, and that it would deepen the

bad blood between diferent generations.

“President Park Geun-hye is maintain-

ing that labor market restructuring is

required for more jobs to be given to

the young, but increasing the number of

temps by means of reduced wages and

more pink slips is not reform but retro-

gression,” United Democratic Party of

New Politics (UDPNP) leader Moon Jae-

in remarked.

UDPNP supreme council member

Jeon Byeong-heon pointed out that the

government’s plan concentrates on noth-

ing but labor market lexibility, and that

the responsibility for youth unemploy-

ment goes to no other than workers. “It

is leading enterprises’ reliance on tem-

porary workers that should be corrected

before anything else,” he added.

Worker Unrest

Amid such conlicts between ruling

and opposition parties, the Federation

of Korean Trade Unions (FKTU), the

nation’s largest trade union, announced

on July 2 that 442,547 out of its 772,158

members participated in recent voting

from June 15 to 30, and 397,453 of them

voted for the strike.

he FKTU’s resolution of the strike

is the irst time in 18 years. Still, the spe-

ciic timing of the industrial action still

remains up in the air. he federation is

planning to begin the strike once the gov-

ernment pushes ahead with its labor mar-

ket reform plan for what the federation

claims to be easier dismissal of workers

and deprivation of their rights. 458,252

members are scheduled to take part in

it at 1,403 places of business across the

country.

he Korean Confederation of Trade

Unions (KCTU) is also planning to go

back on strike on July 15 in less than three

months, which signals the possibility of a

joint strike by the two organizations.

“he FKTU’s resolution at this time is

rooted in not only its objection to labor

conditions, but also the lack of political

trust, and this means things will not get

better unless the government took mean-

ingful action,” said a labor relations ex-

pert.

Hostile Negotiations

Korean automakers are sufering from

lackluster sales and the weak yen. Never-

theless, labor unions are putting pressure

on them, threatening to go on strike.

In May this year, the Hyundai Motor

Company sold 54,990 and 334,309 cars

inside and outside of Korea, respectively.

he total went down by 6.4 percent from a

year ago, while the domestic sales volume

dropped by 8.2 percent and the overseas

sales volume fell by 6.1 percent. During

the same period, Kia Motors sold 40,010

cars in Korea and 202,044 cars abroad.

he overseas sales volume declined by 7.0

percent and the total showed a 4.6 percent

decrease.

Nonetheless, their union members

are asking too much in their wage nego-

tiations. he trade union of GM Korea

has already decided to go on a strike, and

that of Hyundai Motor Company recently

declared an all-out strike in Ulsan City.

GM Korea recorded 148.5 billion won

(US$127.6 million) in losses last year, but

the trade union of the company is call-

ing for a 500 percent bonus along with a

159,900 won (US$127.39) increase in base

pay. In Hyundai, the demands include the

same base pay increment and a bonus of

2.2 trillion won (US$1.89 billion), equiv-

alent to 30 percent of the net proits that

the company earned last year.

he trade union of Renault Samsung

Motors is demanding the construction of

another manufacturing factory in Busan

City with the one already in operation

not even being 100 percent utilized. In

Ssangyong Motors, the employers and the

employees are in conlict other over issues

such as higher severance pay, a 6.79 per-

cent hike in base pay, and extension of the

retirement age.

8% Increase in Minimum

Wage

he minimum wage for next year, an-

other key labor issue, also has been inally

set at 6,030 won (US$5.30), with both

Renault Samsung Motors’ labor union members shout slogans outside of the south gate of the company’s Busan

plant on September 12, 2012.

Ssangyong Motors workers stand in formation, each

holding a metal pipe, while they were on strike in 2009.

Labor Reform

20

Labor representatives walk out of the talks at around 5:30 a.m. on July 8 in protest of a minimum wage proposal

made by labor experts, but on the next day, the minimum wage for next year was inally set at 6,030 won (US$5.30), with both management and labor circles unsatisied.

management and labor circles unsatisied.

hough the hike is the highest in eight

years, labor representatives argued that it

was still insuicient to improve low-wage

workers’ lives, while employers claimed it

would worsen the diiculties of small and

medium businesses.

Representatives from management,

those from labor, and labor experts

agreed to increase the minimum wage

by 8.1 percent next year at the inal talks

of the Minimum Wage Council meeting

that continued into the early morning of

July 9 from the previous evening.

Labor representatives had walked out

of negotiations on July 8 in protest of la-

bor experts’ earlier suggestion of the min-

imum wage hike. At a previous round of

talks, labor experts proposed that the rate

for the minimum wage hike be between

6.5 and 9.7 percent, driving the workers’

representatives to boycott further negoti-

ations.

he minimum wage guide came ater

a vote by the Minimum Wage Council.

he Minimum Wage Act stipulates that

at least one-third of representatives from

labor unions and employers participate

in a vote to decide the minimum wage.

However, if one party refuses to attend

the negotiations more than once, the vote

can go ahead without the presence of the

other party.

Out of 27 representatives, the remain-

ing 18, including nine labor experts and

seven employers, put the revised proposal

to a vote in the morning of July 9 with-

out the presence of labor representatives,

where 15 voted in favor, one against, and

two abstained.

he hourly wage of 6,030 won trans-

lates to 48,240 won (US$42.74) a day and

1.26 million won (US$1,115.74) a month

for those who work eight hours a day. he

pay hike is expected to afect an estimated

3.42 million low-income workers, accord-

ing to the Minimum Wage Council.

he 8.1 percent hike, however, raised

immediate protests from both labor and

management representatives. “We feel be-

trayed and disappointed by the decision,

as we expected double-digit growth in the

minimum wage as proposed by inance

minister Choi Kyung-hwan,” said the

FKTU, the nation’s largest trade union,

said in a press release.

On the contrary, the Korea Employers

Federation expressed complaints over the

“drastic increase” in the minimum wage.

“We regret the decision to drastically raise

the minimum wage, which crushes small

and medium-sized employers’ eforts

for survival amid worsening economic

conditions,” the organization said, point-

ing out that the 8.1 percent increase was

much higher than the inlation rate of 0.5

percent.

here is, however, still room for a

change in the rate, as the Ministry of Em-

ployment and Labor ofers a 20-day pe-

riod for both labor and management to

express their objections before making

the agreed minimum wage rate public for

next year on Aug. 5.

Eternal Tug-of-War

With the worker’s unrest continuing,

the Korea Chamber of Commerce & In-

dustry (KCCI) conducted a survey on a

voluntary agreement at this year’s wage

negotiations on July 8, targeting 300 hu-

man resources and labor relation manag-

ers working for irms with labor unions.

84 percent of the respondents said that

they would be able to come to the volun-

tary agreement.

“Although both the Korean Confed-

eration of Trade Unions (KCTU) and

the Federation of Korean Trade Unions

(FKTU) called for a strike against the

government’s labor market reform plan,

the strike’s impact is likely to be limited in

individual companies, because their wage

negotiations matter more than the strike

for them, and any strike can be regarded

as having political intentions,” the KCCI

explained. Some of the larger unions

including that at Hyundai Motor Com-

pany refused to participate in the Korean

Confederation of Trade Unions’ strike in

April, mentioning that it had nothing to

do with the working conditions of union

members.

Out of the companies that answered

the survey, 81.7 percent picked wage in-

creases and welfare expansion as the hot-

test issues for this year’s talks. Another

32.7 percent mentioned issues such as

ordinary wages, working hours, and re-

tirement age. On average, employers sug-

gested a 3.0 percent increase in total pay,

while employees asked for a 5.8 percent

increase. hey answered they were likely

to meet at 3.9 percent or so in an amica-

ble settlement, regardless of the ongoing

confrontation between employers’ and

employees’ organizations. he Korea Em-

ployers Federation and the Federation of

Korean Trade Unions recently suggested

a 1.6 percent increase and a 7.8 percent

increase, respectively.

56.3 percent of the respondents men-

tioned wage system reform, including the

introduction of wage peaks, as the most

important variable for the second quarter

of this year. It was followed by labor mar-

21

COVER STORY

ket restructuring (33.3 percent).

Ordinary Wage

Settlements

In the meantime, the Ministry of Em-

ployment & Labor announced on July 6

that 4,615 out of 10,571 companies, each

with 100 or more employees, have in-

ished their wage negotiations for this year

as of the end of last month. he ratio, 43.7

percent, is the highest since 2000, when it

reached 47.5 percent. Also, it is equal to

that of 1998 and about 2.5 times that of

the same period of last year.

he 4,615 companies showed an in-

crease in ordinary wages of 4.9 percent,

14.2 percentage points lower than a year

ago. Last year’s exceptionally high rate of

increase was because a lot of companies

expanded the scope of ordinary wages

according to the Supreme Court ruling.

his year, those companies recorded an

increase in total wages, which includes

bonuses and the like, of 4.3 percent. he

percentage was 4.7 percent in 2014.

A total of 819 out of them (17.7 per-

cent) froze or cut their wages, whereas

the ratio had been 9.2 percent a year ago.

48.0 percent of the 4,615 irms mentioned

corporate and individual performances

as the most important variable in the ne-

gotiations. It was followed by an increase

in minimum wage (25.1 percent) and the

amount of salaries paid by the other irms

in the same industry (9.4 percent).

It seems that the negotiations have

been completed with no increase in pay

in a relatively larger number of companies

this year, because the economic recession

is still going on, while the scope of ordi-

nary wages is becoming clearer. In addi-

tion, employers and employees are trying

to reduce uncertainties by wrapping up

the talks early, with the wage peak be-

coming a hot issue ahead of the imple-

mentation of retirement at 60 scheduled

for next year. For reference, the increase

in ordinary wages had been 5.3 percent in

2011, 5.6 percent in 2012, and 4.4 percent

in 2013.

he ratio of companies that have

inished their negotiations amounted to

53.1 percent, 34 percentage points higher

compared to a year earlier, when it comes

to those without labor unions. he ratio

stood at 17.9 percent for those with labor

unions, 44.9 percent for those employing

less than 300 people, and 31.5 percent for

those with 1,000 or more employees.

Emerging Wage Peak Issue

he wage peak issue also has been

emerging as key to labor cost reduction.

Korean companies have to bear more than

115 trillion won (US$99 billion) in addi-

tional labor costs for ive years in the case

where compulsory retirement is raised to

60 without a wage peak. he annual aver-

age costs are equivalent to 2.6 times the

extra costs attributable to the expansion

of the scope of the ordinary wage.

he Korea Employers Federation re-

leased its estimates of the costs expected

to follow compulsory retirement at 60,

which cover a ive-year period starting

from 2017, at a panel discussion held on

July 20 at the Press Center in Seoul.

By its calculation, the ive-year ex-

tra costs reach 37.1168 trillion won

(US$32.0181 billion) for companies hav-

ing 300 employees or more, where the

extension of the retirement age is put into

force in Jan. next year. During the same

period, the additional labor costs amount

to as much as 77.9734 trillion won

(US$67.2677 billion) for smaller irms, in

spite of their one-year grace period, due

to the large number of employees.The Supreme Court ruled on December 18 2013 that the regular bonus is included in the ordinary wage, which is

expected to have great repercussions in the auto industry.

A meeting between Hyundai Motor’s management and the union in the Ulsan plant on August 6, 2013.

Labor Reform

22

From left: Kim Young-bae, Park Yong-man, Kim Dong-man, Kim Dae-hwan (center), Choi Kyung-hwan, Lee Ki-kwon,

and Yoon Sang-jik attended a joint meeting at the Press Center in Seoul on July 29.

he federation’s estimates are likely to

become a reality, because the wage peak

is spreading at a slow pace as of late. As

of June 2014, only 23.2 percent of large

enterprises adopted it, and 9.9 percent

of total companies did. As the introduc-

tion of the wage peak is not mandatory, a

number of employers and employees are

predicted to clash with each other during

their wage negotiations for this year.

According to the Korea Labor Insti-

tute, the annual salary of long-service

employees amounted to 310 percent of

that of new employees in Korea last year,

whereas the percentages stood at 190 per-

cent in Germany, 140 percent in France,

150 percent in Britain, and 240 percent in

Japan.

However, the productivity of workers

aged 55 or older was 60 percent of that of

those aged 34 or less. Under the circum-

stances, employers are calling for not only

a wage peak but also a comprehensive re-

form of wage systems themselves.

Some Positive Signs

Since the tripartite meeting came to

a deadlock in March this year, the three

parties have moved in diferent direc-

tions. he government has pushed ahead

with its reform plan on its own schedule,

while the labor community has staged

rallies to criticize this unilateral action.

he business community, in the mean-

time, has kept a low proile, and experts

have brought up diferent opinions as to

the process and result of the meeting.

Still, at least some positive signs have

been found since then. he three parties

have checked the reality of the labor mar-

ket and the challenges it is facing, agreed

on the fact that those challenges should

be met without any delay for the Korean

economy to become more sustainable,

and reached agreements in at least some

of the agenda items they have discussed.

What is required now is a concession to

get the talks back on track.

In the meantime, it is said that Kim

Dae-hwan, former chairman of the Korea

Tripartite Commission who resigned in

April, will return soon. .

A high-ranking oicial of the presi-

dential oice said on July 26, “he Feder-

ation of Korean Trade Unions (FKTU) is

expected to participate in the Economic

and Social Development Commission – a

consultative tripartite body comprising

representatives of labor, management and

the government – soon, starting meet-

ings. he presidential oice is not looking

for another person, but strongly persuad-

ing Kim to return.”

He also added, “We hope that Kim

uses his experience and leadership as the

head of the tripartite commission once

again. Kim could declare that he would

return to work as early as this week.”

Kim submitted his resignation on

April 9, taking full responsibility for the

failed attempt to reach an agreement in

labor reform at the meetings. However,

President Park did not accept his resigna-

tion, even though his term ended at the

end of June. Accordingly, his term has

been automatically extended. he presi-

dential oice has not been looking for his

successor, but has been trying to persuade

Kim to return to work.

At the moment, the FKTU is consid-

ering whether or not to participate in the

negotiations. If Kim returns to work, la-

bor market reform will be accelerated.

In April, the Economic and Social De-

velopment Commission almost reached

an agreement, except for some issues

such as the salary peak system obligation

and general dismissal guidelines. Accord-

ingly, some of the ruling party say that the

legislation of labor reform will also be ac-

celerated if there is a settlement on major

issues.

Tapgol Park is a popular hangout for retired Korean men who like to play Baduk, or Go in English.

23

Bank of Korea Governor Lee Ju-yeol announces the Bank’s growth outlook for this year at the monthly monetary

policy meeting at the bank’s headquarters in Seoul on July 9.

THIRD TIME CHARM

Korean Central Bank Lowers

Growth Forecast Again to 2.8

Percent by Jung Suk-yee

Korea’s central bank lowered its

growth forecast for this year once again,

citing contracted consumption due to

the Middle East Respiratory Syndrome

(MERS) outbreak, sagging exports, and

drought. he downgrade is the third this

year ater those in January and April.

he Bank of Korea (BOK) on July 9

revised its estimate on the nation’s gross

domestic product growth down to 2.8

percent from its earlier forecast of 3.1

percent in April. Earlier, the central bank

lowered its growth outlook of 3.4 percent

down to 3.1 percent in the irst month of

the year.

Lee Ju-yeol, governor of the central

bank, attributed the downward revision

to weaker-than-expected growth in the

second quarter. he central bank had esti-

mated irst-half growth at 2.4 percent. But

exports decreased 1 percent year-on-year

in the Jan.-June period due to unfavorable

foreign exchange circumstances and weak

global demand. Also, MERS fears hit con-

sumer sentiment hard, to drop local de-

mand.

In a separate press conference, deputy

governor of the bank Suh Young-kyung

said that the MERS outbreak pared 0.3

percentage points of economic growth,

while the severe drought slashed 0.1 per-

centage points of the rate.

he central bank, however, drew a

rosy picture of the second half, expecting

the economy to grow 3.1 percent, with

consumer spending gaining 2 percent and

exports jumping to 3.9 percent.

Finance Minister Choi Kyung-hwan

also said at the brieing on the results of

the Trade and Investment Promotion

Meeting on the same day, “he nation

could achieve 3 percent level growth this

year when the revised supplementary is

executed in a timely manner and the mea-

sures for reviving the nation’s economy

create efects.”

In the meantime, the BOK let its

consumer price growth estimate for the

year unchanged at 0.9 percent. In April,

the central bank had sharply lowered the

projection from 1.9 to 0.9 percent.

Amid the lowered growth forecast re-

vision, the record-low basic interest was

kept in July following the previous month.

he Bank of Korea (BOK) announced

on July 9 that it had frozen the key interest

rate at 1.5 percent for this month, as it was

in June when the central bank cut it to a

record low.

he base rate had been cut four times

to see a total of a 1 percentage point de-

crease since August last year.

he decision was known to have come

from the judgment that it is necessary to

watch the efects of the base rate cut made

last month to fend of demand contrac-

tions from the Middle East Respiratory

Syndrome (MERS) outbreak and those

of the strengthened iscal supports of 22

trillion won (US$19.5 billion), including

a revised supplementary budget of 11.8

trillion won (US$10.4 billion).

Another reason for the decision was

that the U.S. Fed would raise the base rate

within this year, amid the lowest level re-

sulting from the four cuts since the sec-

ond half of last year.

Uncertainties in the global inancial

market are also increasing with the Greek

crisis and China stock market plunge.

Rapidly-increasing household debt is also

said to have contributed to such a deci-

sion.

Even though there has been no seri-

ous out-low of foreign money in spite of

the base rate cuts, a U.S. base rate increase

could lare up the variability and anxiety

of the international inancial market cen-

tered on emerging economies.

Household debt, which has already

exceeded 1.100 quadrillion won (US$974

billion), are highly likely to be a detonator

of the crisis when the shock of the U.S.

interest rate hike hits the local inancial

market. Household debt has been show-

ing a rapid increase of 7 to 8 billion won

(US$6 to $7 million) per month due to

the deregulations of mortgage loans and

cuts of the base rate.

MONEY

24

Fitch has maintained Korea’s credit rating at AA- for the

34th consecutive month, while maintaining a credit outlook of

stable. It mentioned that Korea has solid macroeconomic condi-

tions, along with a high level of iscal soundness.

According to the credit rating agency, Korea’s economic

growth is expected to show some recovery from next year. It

suggested 2.9 percent for this year, 3.4 percent for 2016, and 3.6

percent for 2017. It added that the Korean government’s revised

supplementary budget and expansionary iscal policy will have a

positive efect on consumer sentiment. “Korea’s government debt

level is lower than the average of those of AA countries such as

Britain, Hong Kong, and France, and the government is striving

to reduce public debt while the consolidated central government

MAINTAINING RATING

Fitch Maintains

Korea’s Credit Rating at

AA-

by Cho Jin-young

surplus is going on,” it explained, continuing, “Korea appears to

be less vulnerable than most AA countries to external risks such

as an interest rate hike in the United States, because it has large

amounts of current account surplus, foreign exchange reserves,

and international assets.”

Still, it pointed out that the geopolitical risks associated with

North Korea and a GDP lower than the average of other AA

countries’ could inhibit a rise in credit rating. It also mentioned

that the ongoing rapid increase in household liabilities could

make things worse in the event of a negative impact on the econ-

omy. “We can adjust Korea’s credit rating upward in the future on

the condition that public debt is reduced at an accelerated pace

and the GDP per capita continues to increase,” it said.

Emerging economies’ default risks are skyrocketing due to

concerns over the Grexit and plummeting stock prices in China.

According to market research irm Markit, the CDS premium

for Korea’s 5-year foreign exchange stabilization bond reached

59.37 basis points on July 8. he CDS premium was as high as

60.41 basis points on Feb. 20 this year, but dropped to 46 basis

points or so in May, the lowest level since the 45.0 basis points

recorded on Dec. 31, 2007.

However, it began to soar last month due to concerns about

the Greek default and Grexit. On July 7, the concerns were com-

RISK INCREASING

Korea’s CDS Premium

at 5-month High

pounded by the plunge in the Chinese stock market, and the CDS

premium rose by no less than 4.55 basis points, coming very close

to 60. he premium increased by approximately 18 percent from

50.29 basis points compared to a month ago.

Similar things are happening in Greece and China, as eas-

ily predicted. Greece’s CDS premium soared by 63 percent in a

single day to 13,462.43 basis points, while China’s rose by 7.63

to 104.59. China recorded a 16.8 percent increase in a month,

followed by the Philippines (7.94 percent), Poland (3.82 percent),

Indonesia (3.81 percent), Portugal (0.67 percent), Vietnam (0.28

percent), and Spain (0.23 percent).

MONEY National Credit

25

MONEY

DECREASING EXPORTS

Exports Decrease 15%

Due to Overseas Pro-

duction

Industry watchers say that exports

have decreased due to overseas manufac-

turing, which could have an adverse efect

on overall exports.

According to the “Processing and In-

termediary Trades’ Scale Estimation and

Its Implications” released by Hyundai

Research Institute (HRI) on July 12, ex-

ports through overseas local production

accounted for 17.4 percent in overall ex-

ports in 2012, and the igure decreased to

about 15 percent last year.

Exports through overseas local pro-

duction are composed of processing trade

and intermediary trade. he amount of

processing trade exports increased to

US$94.6 billion (106.91 trillion won)

in 2012, but decreased to US$82 billion

(92.67 trillion won) in 2014. he net

amount of intermediary trade export

increased from US$10.1 billion (11.41

trillion won) in 2012 to US$14.6 billion

(16.5 trillion won) in 2013, but slightly

dropped to US$13.7 billion (15.48 trillion

won) last year.

he decrease in overseas local pro-

duction exports is largely due to China’s

recent policy to limit processing trade

within the country, on which domestic

companies have a high level of depen-

dence. Last year, China accounted for

67.2 percent in domestic companies’ pro-

cessing trade.

Another factor is that each countries’

policy is favorable to its own companies,

Jung Suk-yee

which worsens the business condition

of foreign companies. he change in the

environment can reduce foreign direct in-

vestment of companies. he manufactur-

ing industry’s foreign direct investment

year-on-year decreased by 13.2 percent

in 2012, went up 9.7 percent in 2013, and

dropped by 21.6 percent in 2014 again.

In fact, the increase in the parts and

materials sector stood at 3.8 percent in

2013 and 4.9 percent in 2014. However,

the igure increased by only 2.8 percent

from a year ago in the irst quarter this

year. A senior research analyst said, “We

should vitalize the processing and inter-

mediary trades by expanding investment

in core technology development and the

new growth manufacturing industry at

home, and also by establishing a division

system to secure materials and reduce

production cots abroad. Also, we need to

lower overseas production dependence

on China and seek out new overseas pro-

duction bases.”

TECH OUTFLOW

Korea’s Mobile Phone

Exports Showing Solid

Growth

by Cho Jin-young

This year, the global ICT market

is expected to record negative growth.

Last month, total exports from Korea

decreased by 1.8 percent. Nevertheless,

mobile phone exports from the coun-

try continued to record a double-digit

growth both in May and June this year.

he Galaxy S6 and the G4, the lagship

smartphones of Samsung Electronics and

LG Electronics, led the growth.

According to the Ministry of Science,

ICT and Future Planning, smartphone

exports from Korea added up to US$960

million last month, showing a 31.9 per-

cent increase compared to a year ago.

Mobile phone exports increased by 19.4

percent year-on-year to US$22.5 billion

as well, while overall ICT sector exports

edged down by 0.2 percent to US$83.59

billion between the irst half of 2014 and

the irst half of 2015. “he mobile phone

exports for the irst quarter of this year

were less than expected, but, fortunately,

the release of the lagship models, in-

cluding the Galaxy S6 and the G4 led to a

turnaround in the following quarter,” the

ministry explained.

In the meantime, total ICT sector

exports from Korea edged up by just 0.2

percent year-on-year in June to reach

US$13.95 billion.

Smartphones being shipped out on an Asiana Cargo aircraft.

DECREASING EXPORTS

Tariff Barriers to be

Lifted on 200 IT

Products

most information technology (IT) prod-

ucts, including semiconductors and

computers, in the future. South Korea, Tarif barriers will be dropped on

by Jung Suk-yee

International Trade

26

which has the best competitiveness in the

semiconductor and cellphone sector in

the world, expects to see positive efects,

including export expansion, from tarif

elimination.

According to a report from the Finan-

cial Times (FT) on July 19 (local time),

54 negotiators of the WTO Information

Technology Agreement (ITA) tentatively

agreed to remove tarifs on about 200

high-tech products on July 18. he 80

governments, including the U.S., China

and the E.U., are expected to sign the

agreement by July 24.

Once the negotiation is concluded,

tarifs on IT products that make up about

US$1 trillion (1.155 quadrillion won)

around the world will be eliminated.

Currently, global trade in IT products is

worth about US$4 trillion (4.620 qua-

drillion won) annually, and the update

would see tarifs lited for a quarter of

the goods. he number of the items will

be also increased from the current 140 to

200.

Originally signed in 1977, the ITA is a

plurilateral trade agreement that requires

participants to eliminate their tarifs on a

speciic list of IT products. Each country

has insisted on the complete elimination

of tarifs by major trading partners. In

particular, the U.S. and Japan, which seek

export expansion of their IT products, are

claiming that game consoles, GPS naviga-

tion systems, and medical devices should

be also considered IT products to remove

their tarifs. In contrast, the E.U., which

has relatively low competitiveness in the

IT industry, is taking a negative attitude

on the issue. South Korea had objected to

the deal struck by the U.S. and China, be-

cause it did not remove tarifs on its major

export products such as LCD display pan-

els and lithium ion batteries.

Once the ITA is signed, South Korea,

which has an unequaled competitiveness

in the IT sector including semiconduc-

tors, wireless communication devices,

and electronic appliance equipment, is

expected to see an expansion of export

markets as part of its positive efects.

However, the country has already re-

ceived customs-free beneits in major

markets ater it concluded the FTA with

the U.S. and the E.U. With the ITA deal,

ierce competition with Chinese and Jap-

anese companies is inevitable now.

OUTGOING WELL

Trade Surplus in

Materials and Parts

Reach Record Highs

South Korea’s exports and the trade

surplus of industrial materials and parts

reached a record high in the irst half this

year.

According to the Ministry of Trade,

Industry and Energy on July 8, the exports

of industrial materials and parts amounted

to US$134.3 billion (152.66 trillion won),

up 0.5 percent from the same period last

year. he country’s trade surplus in the in-

dustrial materials and parts sector reached

US$53.3 billion (60.59 trillion won), as im-

ports slipped 2.6 percent year-on-year to

US$80.9 billion (91.96 trillion won). he

by Jung Suk-yee

igures are a record high in both exports

and trade surplus. Accordingly, the exports

of the sector has gradually increased from

2011, accounting for 50 percent of the

country’s overall exports in the irst half

this year.

he increase in exports of industrial

materials and parts is especially meaning-

ful, as it comes amid a drop in the coun-

try’s overall exports, as well as a global eco-

nomic downturn, low global oil prices, and

the weak yen.

In the second half of the year, the coun-

try is expected to face many external un-

certainties such as a cut in China’s imports,

reconsideration of the U.S. for quantitative

easing, and economic and political insta-

bility in Europe. However, the country’s

trade surplus in the materials and parts

sector will easily breach the US$100-billion

(113.67 trillion won) mark for the second

consecutive year.

he exports of parts grew 4.7 percent,

while the exports of materials dropped 8.2

percent.

For exports by item, the igure of non

-metallic minerals increased by 29 per-

cent to US$1.1 billion (1.25 trillion won),

computer and oice machine parts by 28.2

percent to US$2.6 billion (2.96 trillion

won), electronic components by 8 percent

to US$47.1 billion (53.54 trillion won),

and electric machine components by 6.6

percent to US$12.3 billion (13.98 trillion

won). However, the exports of compound

and chemical products decreased by 12.9

percent to US$19.7 billion (22.39 trillion

won), textile products by 11.7 percent

to US$2.2 billion (2.5 trillion won), rub-

ber and plastic products by 7.5 percent to

US$4.5 billion (5.12 trillion won), and pre-

cision machinery components by 4.9 per-

cent to US$2.7 billion (3.07 trillion won).

hese sectors are struggling due to over-

supply in the global market and the lower

prices of raw materials.

For imports by item, the igures for

electronic components increased by 5.3

percent to US$24.4 billion (27.74 trillion

won), precision machinery components by

2.8 percent to US$2.9 billion (3.3 trillion

won), and electric machine components by

1.2 percent to US$7.2 billion (8.18 trillion).

However, the igure of rubber and plastic

products decreased by 11 percent to US$2

billion (2.27 trillion won), primary metals

by 10.8 percent to US$11.9 billion (13.53

trillion won), fabricated metal 10.6 per-

cent to US$1.1 billion (1.25 trillion won),

and nonmetallic minerals by 9.5 percent to

US$1.6 billion (1.82 trillion won), all show-

ing a big drop.

27

MONEY

by Jung Suk-yee

PLACING ASIAN INFRASTRUCTURE

AIIB Launches for Great

Infrastructure Business Opportunities

The establishment of the Asian Infrastructure Investment

Bank (AIIB) is expected to be a boon for inter-Korean economic

cooperation, the recovery of the global economy, and the co-pros-

perity of Asian economies. “he AIIB will be a platform on which

Korean builders and engineering companies take a leading role in

infrastructure projects in Asia worth US$8 trillion in total, which

will result in the revitalization of the Korean economy,” the Korea

International Trade Association explained.

he bank is predicted to be of great help for the economic

initiatives in Northeast Asia including the Rajin-Khasan Project

as well because China, South Korea and Russia participate in the

bank as its founding members. his means the AIIB’s pilot proj-

ects can include the construction of an international port in the

border area of North Korea, Russia and China.

he construction sector anticipates that it will be able to be-

come a foothold for business in Asian infrastructure markets.

“Demands for roads, railways and airports are high in the con-

tinent but most of the overseas projects led by Korean builders

have been based on private investment due to the lack of govern-

ment’s resources,” said the International Contractors Association

of Korea (ICAK), adding, “However, the bank will make reliable

inancial resources for infrastructure projects in Asia and Korean

companies will be able to beneit from it.” Daewoo Engineering

& Construction echoed by saying it was mulling over investment

in less-developed Asian countries with stable political conditions

and room for development as tourist attractions.

According to the ICAK, the amount of the international

contracts won by Korean construction irms increased from

US$40.4377 trillion to over US$275 trillion between 2006 and

2013. Although it slipped to US$159.1552 trillion in 2014, the

amount has already exceeded US$130 trillion this year.

by Jung Suk-yee

The Financial Services Commission (FSC) announced on

July 16 that Korean commercial banks will raise a debt fund of

US$2 billion in order to assist in Korean construction irms’ over-

seas SOC projects, just in time to coincide with the establishment

of the Asian Infrastructure Investment Bank (AIIB).

SOC project opportunities are increasing in Asia these days

based on the launch of the AIIB and European banks’ withdrawal

from Asia due to the recent European iscal crisis. Japanese banks

have succeeded in making the most of the chances, but Korean

inancial companies have been rather slow in doing so. Under the

circumstances, the FSC is planning to raise the fund within a year

with six or seven banks such as KB Kookmin, Shinhan, and Woori.

An average of 300 billion won (US$262 million) is scheduled

BUILDING UP ASIA

US$2 Billion Fund Raised for

Infrastructure Investment in Asia

to be invested by each participating bank in the form of a syn-

dicated loan, and the Korea Trade Insurance Corporation stands

surety for 95 percent of the amount. “Korea owns 3.81 percent

of shares in the AIIB, which is the ith-highest, and this means

that Korean builders and inancial companies are expected to have

great inluence on major SOC projects in Asia,” the FSC explained,

adding, “We hope that this fund will be a boon to the expansion of

their projects abroad.”

he commission is going to relax solvency margin ratio regu-

lations regarding social infrastructure inancing, too. he idea is

to attract insurer investment in those projects by means of a lower

interest rate. Also, the FSC will set up regular contact channels

with the inancial authorities of Vietnam before the end of this

year so that Korean inancial irms’ sales can be facilitated there.

AIIB

28

by Jung Suk-yee

HISTORIC DROP

Sales of Korean Large Businesses

Fall Most in 12 Years

The revenues of Korean large businesses have dropped on

the largest scale in 12 years since the “Card Crisis” in 2003.

According to a Bank of Korea report titled “Business Perfor-

mance Analysis in the First Quarter” released on July 2, the sales

of Korean large businesses fell 5.5 percent during the January-

March period from a year earlier. he igure is worst since the

third quarter of 2003 (-6.3 percent), when the national economy

sufered from the Card Crisis, SARs, and the Iraq War. he igure

is also higher than the 4 percent drop during the global inancial

crisis in 2008.

“Large businesses are destined to be inluenced by exports,

and price factors such as luctuations in oil prices and foreign

currency exchange rates,” said Park Seong-bin, who heads the

Corporate Statistics team at the central bank.

“In particular, shipments of cars and smartphones were the

most sluggish amid an overall global sluggish demand,” Park

added.

he nation’s outbound shipments continued to shrink in June,

falling 1.8 percent from a year ago, marking a drop for six consec-

utive months. he Middle East Respiratory Syndrome (MERS)

outbreak is expected to further hamper growth this year.

by Jung Suk-yee

The estimate of the combined Q2 operating proits of the

183 KOSPI and KOSDAQ-listed companies each covered by at

least three securities irms until July 7 decreased by 539.1 billion

won (US$474.5 million) from a month ago to 32.0947 trillion

won (US$28.2514 billion). During the same period, the sales and

net proit estimates declined by 7.7826 trillion won (US$6.8527

billion) and 1.6055 trillion won (US$1.4135 billion) as well, re-

spectively. he quarterly operating proit estimates dropped or

remained still for 123 out of the 183 companies. Samsung Elec-

tronics’ operating proits for the second quarter of this year are

estimated at less than 7 trillion won, which is far below market

expectations.

he estimate of the total quarterly operating proits of the 10

major electrical and electronics companies, including Samsung

Electronics and LG Electronics, declined by 6.44 percent month-

on-month to 9.6379 trillion won (US$). LG Electronics’ earnings

estimate fell 22 percent from a month ago and 41.23 percent from

a year earlier to reach 356.2 billion won (US$313.5 million). An

PROFIT PESSIMISM

Pessimistic Forecasts Prevail for

Major Korean Companies’ Q2

Earnings

increase in marketing expenses, the less-than-expected perfor-

mance of its new smartphones, and the keen competition in the

market are regarded as the main culprits.

Despite the current recovery of the semiconductor industry,

the igure decreased by 2.92 percent month-on-month to 1.4655

trillion won (US$1.2906 billion) for SK Hynix. “he DRAM price

is on the decline, along with that of NAND lash memory, to af-

fect the earnings of SK Hynix,” Eugene Investment & Securities

explained.

Hyundai Motor Company, Kia Motors, and Hyundai Mobis

are predicted to have recorded 3.2817 trillion won (US$2.8887

billion) in combined operating proits in the second quarter. he

estimated igure is 8.9 percent less than a year ago and 4.57 per-

cent less than that of the previous month. Speciically, Hyundai

Motor Company’s earnings are forecast to have declined by 13.1

percent year-on-year to 1.8444 trillion won (US$1.6242 billion),

and the estimate for Hyundai Mobis decreased by 3.49 percent in

one month to 756 billion won (US$666 million).

MONEY Business Performance

29

MONEY

The Financial Services Commission

(FSC) announced on July 2 that a hold-

ing company structure would be adopted

for the Korea Exchange (KRX), and the

corporation would be reorganized into

a group of wholly-owned subsidiaries

covering their respective stock market

segments before the initial public ofering

(IPO) of the corporation scheduled for

the second half of next year or later.

he FSC is planning to introduce a

holding company structure based on the

revision of the Capital Market & Financial

Investment Law in this year’s regular ses-

sion of the National Assembly and estab-

lish Korea Exchange Holdings next year.

he holding company is to then go public

through the approval of the FSC.

he holding company is slated to have

ive subsidiaries, and four of them are to

be in charge of the derivatives, KOSPI,

KOSDAQ, and the settlement of secu-

rities and derivatives transactions each.

he other one is KOSCOM, the com-

puting facilities manager, in which the

STOCK HOLDING COMPANY

Korea Exchange Reorganized for

Growth of KOSDAQ

by Jung Suk-yee

KRX has 76.6 percent shares. he market

monitoring function of the KRX is going

to be transferred to a non-proit corpora-

tion separate from the holding company

and each bourse. he Korea Securities

Depository, in which the KRX owns 70.4

percent shares, is to sell its shares to de-

pository service users such as inancial

companies for the purpose of corporate

governance structure improvement.

he idea of the reform is to turn the

KOSDAQ into a platform for the growth

of tech-oriented venture irms and small

and mid-size enterprises by lowering

the barriers and better relecting their

growth patterns, economic conditions,

and changes in market demands. To the

same end, a startup support center is es-

tablished for comprehensive consulting

services, while measures such as the trad-

ing volume limit adjustment are taken to

encourage the establishment of an alter-

native trading system.

Under the circumstances, some ex-

perts are pointing out the possibility of

side efects like a reduced level of ei-

ciency and the listing of fewer qualiied

irms. he viability of the KOSDAQ,

which has a loss of approximately 30 bil-

lion won (US$26.7 million) now, has been

called into question as well. In this con-

text, the FSC is going to maximize capital

during the reorganization and make addi-

tional investments over a couple of years

so that the management of the KOSDAQ

can be stabilized. he fund procured by

the IPO will be concentrated on the stock

exchange, too.

he FSC has yet to reach an agree-

ment with shareholders on how to dis-

tribute proits from the IPO. At present,

it is planning to determine the size of the

gains to be recovered by setting up a new

council and spending the money for pub-

lic purposes such as the establishment of

a public foundation, as is the case in Sin-

gapore and Malaysia.

However, shareholders of the KRX

are opposed to the plan. On June 30, they

claimed that the utilization of the gains as

Korea Exchange

30

public funds constitutes professional mal-

practice, unless it is based on legal pro-

visions. KRX stocks are currently traded

in the over-the-counter market at about

130,000 won (US$116) per share, and it is

expected that each stock irm will be able

to procure approximately 100 billion won

(US$89.2 million) when the OTC market

price and a PBR of 1.5 are applied.

Going Public

As the KRX is scheduled to go public

ater the adoption of a holding company

structure, new light is being shed on the

equity value of the KRX shares owned by

Korean securities companies, which are

the largest shareholders of the KRX,

As of the end of last year, securities

and futures trading companies owned

more than 88 percent of KRX shares.

he others were divided into the treasury

stocks of the KRX (4.62 percent) and

those of the Small Business Corporation

(3.03 percent), the Korea Securities Fi-

nance Corporation (2.12 percent), and

the Korea Financial Investment Associa-

tion (2.05 percent).

Each company is expected to be able

to gain 100 billion won (US$89 mil-

lion) or so once the KRX goes public as

planned and it turns the shares into cash.

Although the total capital of the KRX is

100 billion won (US$89 million), its cur-

rent value is estimated at approximately 3

trillion won (US$2.7 billion), given that

the value per share is at around 140,000

won (US$125).

Smaller stock irms with poorer i-

nancial conditions are expected to bene-

it more from the IPO. It can encourage

The Korea Exchange building..

clearing by major stockholders in those

irms where the equity value is closer to

the market cap, which can lead to more

M&A deals in the industry.

Dow Kim

In the meantime, the KRX announced

on July 6 that 30 blue chip stocks, includ-

ing Samsung Electronics, Amore Paciic,

Naver, Hyundai Motor Company, and LG

Chem, were selected as the components

of the KTOP 30, which will be the Korean

equivalent of the Dow Jones Index. he

KTOP 30 will make its debut on July 13.

Six subsidiaries of the Samsung Group are

included in it, along with three from SK

and two from LG.

At present, the KOSPI is the index

that represents the Korean stock market.

However, it has been pointed out that it

is rather heavy, and does not relect the

growth potential of the Korean economy,

because it covers 760 listed companies.

According to the Korea Exchange, Korea’s

current GDP is 36 times that of 1980, and

more than seven times that of 1990, while

the current KOSPI is 19 times that of 1980

and today’s KOSPI 200 index is 2.5 times

what it was 15 years ago. his is why the

Korea Exchange picked out 30 stocks in

view of non-quantitative factors such as

market and economic representativeness,

investor accessibility, and sustainability.

In calculating the KTOP 30 index, the

Korea Exchange set Jan. 3, 1996 as the ref-

erence date and looked into its movement

until May this year. During the period,

this index showed a seven-fold increase

from 889 points to 6,290 points, whereas

the KOSPI as a whole moved up from 889

points to 2,115 points.

he aggregate market value of the 30

stocks is 609 trillion won (US$538 bil-

lion), equivalent to 45 percent of the total

market cap. heir average price is 200,000

won (US$176.84), 130 percent of that of

the KOSPI 200 stocks. heir daily aver-

age trading amount is 62.5 billion won

(US$55.3 million), whereas that of the

KOSPI 200 is approximately 18 billion

won (US$15.9 million). he number of

tradeable KTOP 30 shares is 118 million.

Exactly 32.4 percent of the shares are IT

stocks, and the KTOP 30 and the KOSPI

200 have similar ratios by sector.

Samsung Electronics accounts for

12.9 percent of the index, followed by

Naver (12.1 percent) and Amore Paciic

(8 percent). Samsung Heavy Industries

represents the least of it, 0.4 percent. Two

KOSDAQ stocks – Celltrion and Daum

Kakao – are also included in it. he Ko-

rea Exchange calculated the index based

on not the market cap but the stock price

averages, as in the Dow Jones Index, so

that it can relect the components evenly.

“Investors can easily predict the efect of

stock price movements on the index since

the components have similar stock price

levels,” it explained.

hose priced at 500,000 won

(US$442.11) or more per share were ex-

cluded from the index, with the only ex-

ception of Samsung Electronics. his was

because the representativeness of the in-

dex could be signiicantly reduced with-

out Samsung Electronics. A coordination

factor of 0.5 is applied to its stock price,

though.

Market participants are expecting

that the new index will lead to the ex-

pansion of other markets such as that

of derivatives, while continuing to grow

to represent the Korean economy and

stock market. “When the liquidity in the

derivative market increases based on the

exemption of the transfer income tax on

the derivatives using the KTOP 30, more

index funds, ETFs and the like following

the components or the index itself will be

able to be seen,” one of them said.

On July 6, Korea Exchange chairman Choi Kyung-soo

announces the upcoming launch of the KTOP 30 in-

dex. Korea Exchange

31

SPECIAL REPORT

K-BEAUTYEXPO2015

Must-see Beauty Trade Show,

Business Festival

The Korea International Exhibi-

tion Center, or KINTEX, announced that

the K-Beauty Expo will celebrate its 7th

grand opening on Sept. 17th, 2015. his

must-see trade show will continue for 4

days and drop the curtain on the 20th.

he 7th K-Beauty Expo, indisputably

the largest in Korea and one of the most

promising art and beauty festivals in Asia,

will be more exciting and vibrant than

ever before with the soaring popularity of

Korean beauty products throughout the

world. he K-Beauty Expo is also a gov-

ernment-certiied exhibition organized

by the Government of Gyeonggi-do and

overseen by KINTEX and KOTRA. Vis-

itors will see “All about Beauty” at one

place.

As a banquet of those involved in

the beauty industry, the 2015 K-Beauty

Beauty Expo will showcase the latest

trends in the beauty industry and intro-

duce new products and businesses. Prod-

uct lineups for this year will be varied.

he show will cover a vast range of prod-

ucts including Cosmetics, Hair, Nails,

Aesthetics, Body Care, Medical, Raw

Materials, Packing, Inner-beauty foods,

Fragrance, Fashion Items, Toiletries, and

Spa products. Every year, the K-Beauty

Expo brings 40,000 visitors and exhibi-

tors to the region. he event will also ofer

separate concurrent events and prizes for

regular visitors.

Korea as Springboard for Marketing to Asian Beauty Market

he Korean beauty market has been

rapidly growing at a rate of 5 percent

year-on-year, and has always been the

major force driving the recent Asian

beauty trends. he country has become

a springboard for the efective marketing

of the Asian beauty market. Moreover, its

position as the center for the Asian beauty

market has been bolstered by the entries

of big luxurious brands into the Korean

beauty market.

Burberry Beauty Box, which let

Korea in 2011, has re-entered the Ko-

rean market with a new focus on online

marketing. Tom Ford Beauty, a brand of

the globally-renowned fashion designer,

launched a shop in Seoul in Nov. of last

year. Tory Burch and Agatha also made

their entries into Korea last year. Hermes

perfume also opened at major depart-

ment stores in Seoul.

Korea’s position as a center for the

beauty industry has been reinforced

through the Korea-E.U. FTA that was

concluded in 2009. Since Chinese tour-

ists’ purchasing of and demand for Ko-

rean cosmetics have skyrocketed, many

premium European cosmetics brands

such as Lumene, Eisenberg, and Bio-Ef-

fect are now competing to gain a share of

the Korean beauty market.

With these favorable market con-

ditions, the K-Beauty Expo 2015 is now

undoubtedly regarded as the most impor-

tant venue for the Asian beauty industry.

All participants will have the chance to

explore new business opportunities with

leading Korean beauty companies.

Reputation as Most Fruitful Business Expo

In the past, approximately 500 local

and overseas companies attended the

event purely for business purposes and

about 600 booths welcomed and excited

the international buyers and visitors. he

event is known to be optimized for mar-

keting, publicity, and communication. An

oicial for the event proudly said, “62 per-

cent of visitors to the event this year are

returning enterprises. he phenomenon

is encouraging, as it indicates that the past

expo had helped local businesses in sub-

stantive ways. his year, we will continue

to focus on bringing substantive results

again. Overall, we will make every efort

to make the K-Beauty Expo the most sig-

niicant marketing player that represents

the beauty industry in Asia.”

Last year, the K-Beauty Expo con-

ducted the largest volumes of export con-

sultations, which resulted in turnover of

by Marie Kim

32

about 51.3 billion won (US$43.8 million),

and earned a reputation as a very fruit-

ful exhibition. Given the rising number

of foreign participants, the organizers

are planning to accommodate visitors by

country by setting up separate pavilions

for diferent countries. For this plan, the

organizers have been consulting com-

merce sections of embassies in Korea.

Business Matching Service with For-eign Buyers

he theme of this year’s K-Beauty

Expo is “a fest for marketing.” With 400

companies and 4,000 foreign and local

visitors expected to attend, organizers

have planned the event more thoroughly

than ever.

In a bid to more efectively help Ko-

rean companies in the beauty industry to

securing export opportunities, the beauty

expo solicited assistance from KOTRA’s

overseas oices in locating likely buyers

in foreign countries. In the process, 271

foreign buyers, including Alibaba, China’s

largest e-commerce company; SASA,

Hong Kong’s largest cosmetics retailer;

Manning, Hong Kong’s largest drugstore;

and the director of H&M, the global SPA

brand, expressed their interest in partic-

ipating. he organizers selected 150 of

these potential participants based on the

size of the turnover, purchasing power,

and product preferences.

With these potential buyers, the

EXPO organizers are planning to run on-

site one-on-one business talks. For these

one-on-one business talks, organizers

arranged speciic time schedules with for-

eign buyers and local companies before-

hand. hey also facilitated the exchange

of products and speciic preferences be-

tween potential buyers and local busi-

nesses in advance. Overall, they worked

hard to ensure the “fruits” out of the on-

site business talks.

Brieings on Marketing Strategies in

Foreign Markets

he expo this year will also provide

brieings on marketing strategies for

SMEs with little experience or expertise

to break into foreign markets. In this,

the K-Beauty Expo is cooperating with

the Foundation for Cooperation among

Small, Medium and Large Companies. In

order to facilitate brieings and B2B con-

sultations the Expo will invite marketing

directors from large retail companies in

Korea.

2014 Performance

Last year, a total of 40,000 visitors

visited the exhibition. Of them, 678 were

foreigners. 350 local exporting companies

set up 540 booths and welcomed visitors.

With the emphasis placed on generating

“fruits” of one-on-one on-site talks, they

underwent multiple screenings before se-

lecting 110 potential foreign buyers. he

results were remarkable.

Contracts that were actually made

proved to be worth about 51.4 billion won

(US$43.9 million), marking an increase of

3.5 times from the previous year. Beitting

the slogan “K-Beauty to the world,” or-

ganizers received praise for the remark-

able feat of helping export companies in

successfully gaining a foothold in foreign

markets.

Overview of the K-Beauty Expo 2015

Event Name: K-Beauty Expo 2015

Date: Sept. 17–20, 2015

Venue: KINTEX Number 1 Exhibition Center, Halls 3, 4, and 5

Organizer: Government of Gyeonggi-do

Sponsors: KINTEX and KOTRA

Displayed Items: cosmetics, hair products, nail treatments, body care products, itness products, raw materials, medical products, products of OEM or ODM companies

Concurrent Events

• Invitation of foreign buyers for one-on-one consultations on export opportunities

•Brieing on retailing industry by marketing directors from large companies in Korea •Ceremony to award the prizes for K-Beauty 2015 Editor’s Choice

•Talks led by mentors in beauty industry

•Seminars on strategy for breaking into export markets

•Brieings on online retail market in China •Booths specializing in men’s beauty products

•Booths on scalp care lotion and hair implants

•Hair trend show

SPECIAL REPORT K-Beauty

33

SPECIAL REPORT

K-BEAUTYEXPO2015

Overview of Participating

Companies

ReinPlatz Cosmeticwww.reinplatz.com

Contact: Lee Jae-yeon 02-6093-5222

Ater locating in Gochang in the

south-west region of Korea, ReinPlatz

Cosmetic has developed and manufac-

tured products with local agricultural

products, such as rubus coreanus, blue-

berries, pesticide-free rice and green

tea, as an ingredient. It is a naturalistic

cosmetic brand that makes customers

beautiful utilizing the natural beneits of

Gochang, known as a clean area, and pur-

sues the eco-friendly lifestyle to protect

the natural environment. Currently, the

company makes 70 percent of its proits

from overseas markets in China, South-

east Asia, the U.S., and Japan. With dif-

ferentiated designs and product planning

abilities, it took part in developing new

products for global cosmetics brands in

China and the U.S., having strength in the

original design manufacturer sector.

ElishaCoywww.elishacoy.com

Contact: Jessie Jung 02-2140-7323

Marking the 10th anniversary of its

founding this year, ElishaCoy has initiated

“K-beauty” by exporting products to 20

countries, including Japan, China, Hong

Kong, Malaysia, and India, ater the brand

launched. With its brand power being

recognized, the company opened 100

stores in SASA, one the leading cosmet-

ics and retailing beauty services group in

Hong Kong, and DFS Hong Kong in Tsim

Sha Tsui. In particular, it has revealed a

new product, “Perfect Cover Cushion,”

thanks to the high popularity of the Pink

Blooming Cushion. Based on the expan-

sion of the cushion foundation lineup,

ElishaCoy plans to activate the channels

of the domestic health and beauty store

Olive Young.

Konadwww.konadcosmetic.com

Contact: Kim Na-young 070-4398-9808

KONAD is a smaller sized cosmetics

company that has impressed the global

beauty industry by developing Stamp-

ing Nail Art kits, which is considered to

be the most wonderful invention in the

beauty industry, for the irst time in the

world. KONAD Stamping Nail Art kit,

the representative product of the com-

pany, enables you to create beautiful nails

without professional help. It is a new nail-

imprinting kit that lets you put designs

by stamping predesigned images on your

nails in minutes.

Ancors

http://ancors.co.kr

Contact: Kim Min-jun 070-4900-0603

Ancors, South Korea’s cosmetics

brand to develop and manufacture ba-

sic skincare products, has succeeded in

developing and mass producing Picture

Hydrogel Masks for the irst time in the

country. he Picture Hydrogel Mask is

produced by printing animal or preferred

pictures and drawings on the mask, then

coating the printed mask with hydrogen

gel. Accordingly, customers can design

the masks with various paintings and pic-

tures.

Pinebiowww.pinebio.net

Contact: Na Sa-ro

Na Saro 031-876-0995

Pinebio, a company located in Gang-

neung, Gangwon Province, has recently

participated in the “Regional Intellectual

Property Creation & Support Project” of

the Gangneung Chamber of Commerce

and Industry’s Regional Intellectual Prop-

erty Center, and released the renewal

products of its Cleopine brand. Cleopine

is a functional cosmetic that can improve

eight skin problems at once, such as wrin-

kles, skin tone, skin damage, aging, dry

& oily skin, inelastic skin, lusterless skin,

and moisturizing.

EZpack Corporationwww.ezpack.co.kr

Contact: Kevin Song 031-8071-4800

EZpack Corporation is a wrap-

ping machine producer that develops,

manufactures and sells over-wrapping

machines that wrap boxes with plastic

K-Beauty

34

ilm. In particular, the company devel-

ops and exports manual and semi-auto

over-wrapping devices suitable for mul-

tiple-product compact packaging, which

is needed in the cosmetics industry. Also,

it is better known in the overseas mar-

kets, rather than the domestic one, in the

over-wrapping, cosmetics, and box pack-

aging sectors.

Miguharawww.miguhara.com/

Contact: Lee Seong-guk 031-786-0365

Founded in 2013, MIGUHARA pro-

duces and sells cosmetics made with

all-natural ingredients, aiming at super-

naturalism, skin trouble treatments, and

intensive moisturizing. By manufactur-

ing products through the OEM system,

it is a company that generally distributes

and sells products online with business

to customer (B2C) marketing. Currently,

MIGUHARA focuses on the domestic

market, but plans to tap into the overseas

markets in the future. he representative

products are whitening, acne-prone and

moisturizing lines.

Art Workswww.beaubar.co.kr

Contact: Yu So-ra 031-945-3241

he view bar cosmetic spinning or-

ganizer is designed in a hexagonal shape.

Ater it went viral as the beauty mentors’

organizer, it became so popular in the

online beauty market that many me-too

products have launched. However, the

home-produced product has unrivaled

solidity and durability, unlike other brand

products imported from China, the com-

pany said. Since the spinning organizer

has recently been upgraded, you can

choose it for either basic skincare prod-

ucts or makeup products. Also, you can

adjust shelves to be the way you want.

Songhakwww.ohbeauty.co.kr

Contact: Eom Jung-yong 031-778-2209

Starting with mud masks in 2002,

Songhak is considered a dark horse in

the cosmetics industry, which has kept

making hits in the TV home shopping

network with unprecedented products,

such as the Oxygen Mask Cleanser, the

Showking Mascara, the Roller Founda-

tion BB, and the Spray Mask Pack. In par-

ticular, the Oxygen Mask Cleanser, which

is popular to working women, is suitable

for general skin types, removes dead cells,

and is simple to use.

Nami Designwww.thenamie.com

Contact: Shin Hye-in 031-451-5188

Based on the world’s best nail art

design development capabilities, Nami

Design is leading the trends in the de-

sign nail market with its various designs

and best quality products. Pre-designed

nails, as one of its major items, cur-

rently include the patch type nails and

the premium handmade nails, which are

planned, designed, produced, distributed,

and exported. he company is supplying

its products to AmorePaciic, the best

cosmetics irm in Korea, as an ODM,

and also to Dubai SPLASH as an ODM

for them to be sold to 15 countries in the

Middle East. In particular, its patch type

pre-designed nails allows you to conve-

niently put it on and take of unlike the

existing nail polish.

Senscowww.storyderm.com

Contact: Yang Hoi-sung 02-3462-0809

SENSCO is a specialized provider of

medical beauty solutions in South Korea.

It is supplying the Dr. Healing Peptide

System to hospitals and aesthetic shops.

his system helps your face be irmer,

whiter, and more moisturized right ater

spreading a thin layer on the face with a

brush. Since it contains more than 30 per-

cent of peptide and collagen, the system

delivers strong moisturizing, anti-wrin-

kle, whitening, and regenerative efects

on your skin.

Mentor Labwww.baramo.net

Contact: Kim Yoon-Jung 02-552-4080

Mentor Lab, which treats mental

disorders including stress alopecia and

trichotillomania, is established for many

patients sufering from hair loss by doc-

35

SPECIAL REPORT

tors and researchers. It has launched

eight products of BARAMO, which con-

tains patented plant extract substances

Triko-activeTM (Korea Patent Registra-

tion No. 10-0845786). For the irst time

in the country, it was awarded the grand

prize in the hair loss industry at the 9th

Korea Health Industry Awards 2015.

NoTSwww.nots.co.kr

Contact: Oh Jae-young 010-2478-5589

NoTS is a cosmetics brand made with

all-natural ingredients. he 28 Remedy

Repair Cream is ideal for sensitive and

acne-prone skin that intensively supplies

moisture by activating aquaporins, mem-

brane water channels that play critical

roles in controlling the water contents of

cells. he 28 Remedy For Man products

soothe your skin, maintain the oil-wa-

ter balance and restore the regenerative

cycle of your skin. Also, there are other

good products. he 28 Remedy Juvenile

Sun B.B For Man safely protects your skin

against UV rays and covers skin laws.

he 28 Remedy Acne Pore Deep Cleanser

helps your skin clean without causing

any skin problems, even for sensitive and

acne-prone skin.

Wow Ventureswww.wlab.co.kr

Contact: Lee Hye-ji (Sophia) 070-4693-

1252

As WLAB, a trademark of Wow Ven-

tures, has released the CO2 Carbonic

Body Fit Cream, which contains vital

PPC ingredient and various plant extracts

for efective skin care, it is being greatly

favored by female consumers who want

to reduce body fat. With WLAB sign-

ing a partnership agreement with New

& New Co. which can produce carboxy

creams with its patented substances in or-

der to improve the reliability of products,

its technology was being recognized. In

particular, WLAB’s patented technology

using carbon dioxide can help your body

absorb anti-cellulite ingredients more ef-

fectively.

Queen Businesswww.miss-sophia.com

Contact: : Ju Yo-han 02-716-7126

Queen Business has been producing

basic skincare and makeup products and

other cosmetics-related products with an

OEM or ODM for 25 years since 1989. It

is also jointly developing products with

overseas buyers and exporting them to

major cosmetics irms around the world.

Twenty ive years of strong basic skills and

international sourcing capabilities of var-

ious products are the company’s unique

strength. It can also always provide new

and good products to customers at a rea-

sonable price. Queen Business is launch-

ing numerous new products in 2015 in a

bid to meet the needs of customers. he

company is introducing hot items – the

Photoshop Essence Makeup, the Vita CC

White Detox Cleanser, the Vita D Essence

Powder, and the Vita CC One-step Snow

Cream – in Asian countries, including Ja-

pan, the Middle East, China, and Korea,

in 2015.

Hair JoyContact: Han Ju-yo 031-399-7721

Hair Joy is a specialized company to

produce hair growth products, which

makes your hair and eyebrows healthier

by preventing loss and promoting the

growth of new hair and eyebrows. Cur-

rently, it is supplying hair loss treatments

to 50 hospitals. In particular, the anti-hair

loss shampoo is produced with 30 Chi-

nese herbs as its major ingredients. It

passed both hair growth tests conducted

by E-Mart, the largest retailer in South

Korea, and Canada’s Loblaws, the largest

retailer in North America.

Global Gangwon Trade Co., Ltd.www.ggtrade.co.kr

Contact: Kim Myeng-ja 033-255-1552

Global Gangwon Trade produces its

two beauty devices – the moisture spray

and the vacuum massager – and natural

homemade soaps with an OEM or by

itself. It is also an international trading

company that directly exports 150 prod-

ucts from 35 small and mid-size irms

in Gangwon Province to overseas mar-

kets. Along with an international online

marketing strategy, the company sells

its products and partners’ products on

B2B e-commerce websites – buyKorea,

tradeKorea, GobizKorea, Ec21, Ecplaza,

HKTDC, and tradekey – and B2C web-

sites – kmall24, WORLDiBUY, and ebay.

It is the irst e-commerce exporter in

Gangwon Province.

TDC CO., Ltd.

www.dr-young.co.kr

Contact: Seo Hye-eun 02-555-9476

Skin age solutions from Dr. Young

means younger, healthier, and more beau-

tiful skin. It creates its anti-aging solution

by balancing water, oil, amino acids, and

protein in the skin. Currently, the global

K-Beauty

36

brand has more than 405 stores around

the world, including Hong Kong, Ma-

laysia, hailand, Singapore, the U.S., and

China. As the company recently started

business in China, it is licensed to sell

more than 10 Dr. Young products by the

Ministry of Health of the People’s Repub-

lic of China.

Dr. Young CEO Chae Kyung-a showed

an ambitious goal, saying, “hrough ex-

hibitions in Shanghai this spring, the

brand has received much attention from

Chinese irms. With exhibitions in Bei-

jing and Guangzhou in the fall, we are

planning to accelerate business in China.”

he company will also take part in the

K-Beauty Expo scheduled to be held at

KINTEX in Sept. in Korea. You can ind

the brand in 50 stores of Belport, Lotte

Department Store Belport, and Lohb’s.

he representative products are the

U-line Clearing Mist, the Pore Eraser

Balm, and the Centella Scar Ointment.

Dr. Young’s Deep Clearing Clay Mask and

Mask Sheets recently made an appearance

on a popular SBS weekend drama. With

good quality, Dr. Young will hopefully be-

come a more desired brand by customers.

Beauty People Cosmeticwww.beautypeople.co

Contact: Serena 070-4651-0985

As the number one brand in the

Beauty product category at open market

and social commerce websites in Ko-

rea, its products are receiving more than

3,000 customer reviews. As Beauty Peo-

ple sold more than 25,000 eyeliners, its

main products, for a week ater launch-

ing, many customers asked to restock the

products.

With its unique and cute packaging de-

signs and eicient product lineup, the

Snow White Edition Series were sold out

early at home shopping channels at home

and abroad.

As Beauty People has participated in

beauty expos in Hong Kong and Shang-

hai several times, international buyers

from more than 40 countries around the

world have proposed to export the prod-

ucts. With good quality and reasonable

prices, the brand is highly competitive in

the global beauty market.

White Rabbit Beautywww.white-rabbit.kr

Contact: Park Hee-ung 010-5542-2409

WhiteRabbit produces, distributes

and sells 100 percent organic cotton fa-

cial pads, wet wipes, and panty liners.

Since WhiteRabbit uses beat-up and wa-

ter jet cotton, unlike other companies,

the products do not contain any bleach-

ing agents or harmful chemicals due to

its manufacturing process. he company

manufactures products with materials

that are approved by the U.S. Food and

Drug Administration (FDA) and have

received Lifestyles of Health and Sus-

tainability (LOHAS) certiication. It also

produces facial cotton pads using ma-

terials that have received FITI Testing &

Research Institute’s Sanitary Finished (SF)

Mark and quality guarantee Q Mark, and

are patented with antibacterial qualities.

WhiteRabbit is the only company using

materials manufactured by water jet pro-

cessing in Korea. Since the company has

numerous licenses and mesh cotton, it is

possible to produce products overseas.

WhiteRabbit always puts nature and

humanity irst. Using only 100 percent

pure cotton iber, the company values the

environment and your skin over anything

else, and develops the best products with

the excellence of its own cotton.

LALAwww.lalacos.co.kr

Contact: Kim Min-jung 070-4849-1249

Started in May 2012 as a company

that sells special ofer cosmetics online,

Lala Corp. has developed nearly 40 prod-

ucts for the past three years and become

one of the leading cosmetics irms in the

beauty product category at social com-

merce websites. With the company en-

tering into an alliance with more diverse

partners in other countries, including

Japan and China, as well as numerous

domestic distribution channels, Lala

Corp. is reaching out to new customers.

With slogans “One Drop on Your Panty,

Rose Day” and “You Are Crazy About

Me, Pheromone Perfume that Seduces

Opposite Sex,” the company achieved its

sales goal of 3 billion won (US$2.56 mil-

lion) with its natural therapy oil “Rose

Day,” which became a must-have item for

Korean women in 2014, and pheromone

perfumes.

Currently, the company has tapped

into the gel nail market. As it receives

favorable reviews from customers with

its high quality products at reasonable

prices, Lala Corp. plans to expand over-

seas exports and secure more inluential

distribution channels through various

exhibitions at home and abroad. While

cooperating with oline vendors and

blending its president’s experiences in the

home shopping industry, the company

will focus on launching beauty devices

and collaboration products with Kakao

Talk Friends’ designer Hozo, which are

still under development, in the home

shopping channels, and stepping into the

overseas markets with these products.

Moreover, it plans to increase sales in its

own shipping mall by directly managing

the mall and carrying out various market-

ing campaigns for customers.

37

SPECIAL REPORT

Cosmetics Zone

A variety of cosmetics including basic,

functional, and organic cosmetics will be

on display.

Cosmetics that are popular in the

online community and spread by word-of-

mouth will also be on display and available

for on-site use and purchase.

Hair Zone

A variety of domestic and foreign

cosmetic devices will be on display, and

visitors’ on-site use of these hair styling

devices will be also possible. The top 5 local

franchises in hair styling will launch a hair

show. Overall, visitors will be introduced to

the latest trends in the hair styling industry

in Korea.

Aesthetic Zone

Skin care services, semi-permanent

make-up, and an eyelash extension service

that is only available at beauty parlors

will be provided on the spot. Products

and programs will be available for on-site

purchase.

Medical Services Zone

Medical professionals in plastic surgery,

dentistry, and dermatology, and members

of the Gangnam-gu Medical Tourism

Association will be participating en masse.

Their participation is expected to attract

foreigners interested in beauty services to

the Expo. For general visitors interested in

medical beauty services, consulting will be

provided.

Inner Beauty Food Zone

Detox, diet products, carbonated water,

and supplements that help skin care and

diet will be on display.

Body Zone

Heath and slimming devices that can

be easily used at home will be on display.

A device for lower-body bathing, which is

designed to help blood circulation, is one

of them.

Fitness Zone

Regardless of gender, everyone

is interested in fitness. Programs and

instruments relating to fitness, such as

yoga, pilates, zumba, and equipment for

these exercise programs will be introduced.

On-site use will also be possible for visitors.

Fashion Zone

Jewelry and accessories that would add

charm after hair-styling and make-up will

be exhibited.

In particular, the booming modernized

Hanbok will be exhibited as part of K-

fashion trends.

Distributional Market Zone

Hyundai Department Store and

Lotte Department Store are expected to

participate in running a Thanksgiving Gift

Market. A variety of beauty products will

be offered at reasonable prices.

Beauty Contest

An International Body Art Contest

and an International Beauty Therapy

competition are scheduled to be held at the

same time.

Introduction of Exhibition Zones

Cosmetics Zone Hair Zone

Beauty Contest

Fitness Zone

International Fitness

Convention

Concurrent Event Hall

Stage

Nail Art

Experience

Center

D. I. Y.

Cosmetics

Class

Esthetic

Zone

Body

Zone

Inner Beauty

Food Zone

Medical

Services

Zone

Nail

Distributional

Market Zone

Fashion

Zone

K-Beauty

38

IR & MANAGEMENT

Samsung Electronics shares closed at 1,305,000 won

(US$1,132) on July 17, equivalent to approximately 290 percent

of the price during the global inancial crisis in 2008. Never-

theless, the company’s price-to-book ratio (PBR) stood at 0.96,

about one-ith of Apple’s.

his is an example of how undervalued Korean stocks are.

Recently, Elliott Management was opposed to a merger between

Samsung C&T and Cheil Industries on the grounds that the

price of Samsung C&T shares was low.

he undervaluation of individual stocks has resulted in the

undervaluation of the Korean stock market as a whole. It has

drited sideways for four years while American, Japanese, Chi-

nese, and European stock markets have enjoyed a boom.

Experts point out that this is because of the structural vul-

nerability of the Korean capital market. “Korea is a small-scale

open economy, and its capital market is fully open to the out-

side, which means that the country is easily swayed by external

factors such as tapering,” one of them explained, adding, “En-

terprises themselves need to make eforts to raise their dividend

payout ratios, make their governance more transparent, etc.”

According to industry sources, the corporate value of Sam-

sung Electronics, which has the largest aggregate market value

in Korea, is approximately one-ith of Apple’s. Apple recorded a

PBR of 4.95 in the middle of this month, when Intel’s was 2.38.

VULNERABILITY TO HOSTILE ATTACK

Hunters Aiming at Undervalued

Korean Companies

by Jung Suk-yee

he market caps of Samsung Electronics and Intel are 188.8 tril-

lion won (US$163.8 billion) and 162.9 trillion won (US$141.3

billion), respectively. Hyundai Motor Company’s PBR is at 0.51

or so. “Although the PBR is not the sole index for corporate

value analysis, the low PBR levels of those companies represent-

ing Korea imply that shareholders have a lot of discontent,” said

Hwang Young-ki, chairman of the Korea Financial Investment

Association, continuing, “Besides, the PBR of the market as a

whole is low and those of conglomerates are particularly low,

which is problematic.”

For reference, Toyota’s current PBR is 1.53. he igure is 1.18

for GM and no less than 26.14 for Tesla Motors. hat of POSCO

is just 0.38, much lower than Nucor’s 1.67, Baosteel’s 0.93, Nip-

pon Steel’s 0.7, and Alcoa’s 0.84. Samsung C&T has a PBR of 0.8

with a market cap of 10.8259 trillion won (US$9.39222 billion).

Meanwhile, Shimizu Corporation has a PBR of 1.88, along with

an aggregate market value of 7.7902 trillion won (US$6.7568

billion).

he underestimation can be attributed at least in part to Ko-

rean enterprises’ corporate governance structures being weak-

ened during the course of business inheritance. his has led to

a higher level of vulnerability to vulture funds such as Elliott

Management, which, in turn, has brought about a bearish stock

market that foreign investors refrain from investing in.

40

Professor Shin Jang-seup of the National University of Sin-

gapore pointed out that the conlict between Samsung C&T and

Elliott Management is because of the Korean government’s an-

ti-conglomerate policy, characterized by the most restrictive fair

trade act in the world and complex procedures regarding the suc-

cession of management rights.

“Even the Samsung Group, the largest business group in

Korea, has become vulnerable to activist funds due to the gov-

ernment’s inlexible enterprise policy,” the professor remarked at

the June 25 seminar in Seoul hosted by the Citizens United for a

Better Society, adding, “Korea is one of the few countries where

a single voting right per share is forced by commercial law, too.”

he professor mentioned that, in advanced economies, fair

trade regulations come into play only when collusion, abuse of

status, or the like causes speciic side efects such as monopoly or

restriction of competition, whereas enterprises in Korea can be

subject to regulations just because of the number of subsidiaries

or the size of assets, as the fair trade act of the country includes

restrictions on business consolidation and economic power con-

centration.

“Besides, the succession of control over a company via its

foundation is not easy in Korea, due to the government regula-

tions with regard to the foundation’s stockholding, and this has

caused companies to become unable to protect their manage-

ment rights and short-term speculative funds to have their own

way,” he continued, adding, “Under the circumstances, the policy

should be overhauled so that protective measures such as the poi-

son pill and dual-class voting rights can be adopted.”

Professor Shin Jang-seup makes a presentation about the characteristics of activist

Disparate voting and stock purchase rights, two of the most

well-known ways for the protection of management rights, are

being debated in the National Assembly to keep foreign specu-

lative funds at bay. his is the irst time that the disparate voting

rights issue has been legislated, though an attempt to introduce

reduced stock purchase prices for existing shareholders, a.k.a. a

“poison pill” law, was made ive years ago.

“We are planning to table a bill this month, in cooperation

with the Korea Listed Companies Association, to amend the

Commercial Code, with Elliot management trying to inhibit the

merger between Samsung C&T and Cheil Industries, and the

protection of management rights emerging as a hot issue,” ruling

Saenuri Party lawmaker and Vice Speaker of the National Assem-

bly Jung Kap-yoon said on July 14.

he purpose of disparate voting rights is to promote the sta-

bility of corporate management by giving more voting rights to

management shares. hat of the “poison pill” is to prevent hostile

M&As by allowing existing shareholders to purchase new shares

at a discounted price. However, disparate voting rights can be

exercised at any time, which means that there is the risk of an

existing major shareholder abusing it.

“Korean enterprises have few ways for management rights

protection, and this has resulted in side efects such as the accu-

mulation of reserves to be prepared for an emergency,” the law-

maker explained, adding, “Once the disparate voting rights are

brought in, the reserves will be able to be used for investment

purposes.”

ANTI-CONGLOMERATESENTIMENT

Making Korean

Companies Vulnerable to

Activist Funds

by Jung Suk-yee

BAKED-INUNFAIRNESS

Disproportionate Voting

Rights Issue to be Brought

into Congress

by Cho Jin-young

IR & MANAGEMENT Management Defense

41

Samsung Electronics’ 44-story headquarters building in Samsung Town, Seo-

cho-gu, Seoul, South Korea. (Photo courtesy of Oskar Alexanderson/Wikimedia

Commons).

ICT

The Samsung Group selected ten candidate technologies

that are expected to lead the Internet of hings (IoT) era. hey

are about new techs that can connect to smart sensors and mo-

bile devices, which are essential for continued growth of Korean

industry, including Samsung.

On July 13, Samsung announced this year’s 10 support proj-

ects to nurture future technology. Smart sensors and system

sotware were designated as two major themes for this year, and

ive projects were selected for each theme. he company is going

to throw its full support behind 10 projects through the Sam-

sung Science & Technology Foundation and the Future’s Tech-

nology Nurturing Center inside Samsung Electronics.

A project headed by Professor Lee Ji-sung from Ulsan

National Institute of Science and Technology to develop a 3D

smart tactile sensor using a nanocrystal compound was chosen

as one of the 10 projects. Another selected project is being led by

Professor Kim Jang-woo from Pohang University of Science and

Technology (POSTECH), about developing a sotware system

that makes online communications between devices possible.

hey are the core IoT techs that Samsung focuses on as future

growth engines. A Samsung associate explained, “Our choice is

not based on the possibility of turning techs into money-mak-

ing ventures right away. Rather, we choose techs among projects

proposed by academic circles, depending on whether or not

SELECTING LEADS

Samsung Selects 10 Core

Techs in IoT Era

by Cho Jin-young

they are worth investing for the national interest.”

In the sotware ield, a method capable of increasing the

power eiciency of mobile devices up to 30 percent developed

by Professor Jun Byung-gon from Seoul National University,

a tech to improve data communication capabilities of NVMe

SSDs by Professor Kim Jin-soo from Sungkyunkwan University,

a technique for collecting and storing a large amount of data by

Professor Kim Yong-gon from Seoul National University, and a

method to develop a next-generation engine for data processing

by Professor Park Sung-woo from POSTECH were all selected

as support projects.

As for the censor category, selected projects include tactile

sensors using complex nanomaterials developed by Professor

Lee Kyu-cheol from Seoul National University, conductive poly-

mers to make a next-generation sensor for disease diagnosis on

the spot by Professor Yang Hae-sik from Pusan National Uni-

versity, a disease-warning sensor using bodily luids by Profes-

sor Kim Young-pil from Hanyang University, and an artiicial

inorganic light- emitting antibody that can be used to detect

pathogens by Professor Kim Jong-ho from Hanyang University.

Since 2013, Samsung has conducted a 10-year project to

nurture future technology with a 1.5 trillion won (US$1.3 bil-

lion) investment. It announces dozens of support projects in

the ields of basic science, materials tech, and ICT every half

year. From last year, it has also designated themes and selected

support projects related to areas that are believed to be urgently

needed, in addition to these three categories. Last year, energy

storage and collection and IoT security were the designated

themes. To date, 160 projects have been chosen. he company is

scheduled to announce the results of its project selection for the

latter half on Oct. 8.

THING-BASEDINTERNET

Korea Has Largest

Number of IoT-Connected

Devices

42

materials company, is leading the evolution of residential space

as shown by its development of smart windows capable of open-

ing and closing on their own, and controlling light via a smart-

phone.

Hanssem created a device business unit late last year, work-

ing to develop smart furniture with LG Electronics and other

electronics companies. Its smart home products are aimed at

using space more efectively by integrating consumer electronic

products into furniture. Built-in furniture is simply the combi-

nation of home appliances and kitchen furniture, while smart

furniture is a more upgraded version.

Hanssem is going to showcase a product that combines a

microwave and kitchen furniture, a 2-in-1 product that adds

a shoe-drying function to a shoe cabinet, and a dressing table

with a tablet PC inside the mirror. he smart dressing table can

evaluate the skin of the user, since there is a special camera built

into the mirror.

Hyundai Livart already developed ICT-integrated smart

kitchen furniture in Nov. 2014, together with SK Telecom, the

nation’s largest mobile carrier. he smart furniture can be used

like a smartphone through the Internet and a touch screen on

the mirror and the walls. In addition to making phone calls, it

is possible to play music and videos stored on a smartphone. It

is also possible to get information on the price of agro-ishery

products and recipes useful for rookie housewives. On top of

that, the furniture company recently unveiled ICT-based stu-

dent furniture, which has met with a very positive reaction from

parents.

LG Hausys opened an era of smart building materials by

debuting smart windows as well. he functions of the smart

windows can all be controlled with a smartphone, including

opening or closing windows, sounding burglar alarms, ventilat-

ing the house, and controlling light. It is possible to wirelessly

open or close windows using a related app from the outside of

the house. When windows are opened by force, users are imme-

diately notiied via their smartphone.

Boiler manufacturers are also using the IoT by integrating

ICT into their products. KyungDong Navien released Navien

Remotely-controlled Home Automation in June 2014, using a

smartphone-enabled remote control technology.

REMOTE CONTROL HOUSE

Home Becomes Smart

Environment Using IoT

South Korea reportedly topped the global ranking on the

number of the Internet of hings (IoT)-connected devices. Ex-

perts are saying that the nation has taken a step forward to be-

come an infrastructure powerhouse in the IoT market, which is

still in its early stages.

he number of IoT-connected devices per 100 Koreans is

37.9, which put the nation in the top spot, said the Ministry of

Science, ICT and Future Planning (MSIP) on July 16, citing the

OECD Digital Economy Outlook 2015 published by the OECD

on July 15. Denmark was in the runner-up position with 32.7

units, followed by Switzerland with 29 units, and the U.S. with

24.9 units. Among the OECD’s 34 member countries, the gap

between Korea and other countries in the top slots is wide. here

are 18 million IoT-connected devices in Korea, which placed the

country in the third spot, following the U.S. (84 million units),

and China (78 million units.)

Korea nabbed the top spot in the proportion of ICT value

added to the entire one relected in commodity prices with 10.7

percent as of 2013. he nation also topped the global ranking on

download speeds and average connection speeds, and was the

only OECD member country that saw the weight of ICT exports

grow in 2013 compared to 2001. In addition, Korea occupied

the runner-up position in the ratio of ICT employment to total

employment with 4 percent, and accounted for 6 percent of the

total ICT exports around the world, propelling the country to

fourth place.

Prices for mobile services in the nation are considered to

be lower than those for OECD member countries on average.

Mobile telecommunications bundles are the second-cheapest in

Korea, following France.

However, the country ranked 28th in homepage ownership

and 24th in the use of cloud computing services. Korea’s low

ranking of the use of cloud computing is presumably due to the

fact that small businesses comprise a large proportion of the in-

dustry.

Furniture and building materials companies have started

to actively respond to the era of the Internet of hings (IoT) by

integrating ICT into their products.

According to industry sources on July 8, furniture compa-

nies such as Hanssem and Hyundai Livart are actively seeking to

develop smart furniture by forging partnerships with electron-

ics and telecommunications companies. LG Hausys, a building

ICT IoT

43

ICT

On July 22, the Financial Supervisory Service (FSS) held a

meeting in Seoul in order to give an explanation of its Internet

primary bank screening criteria. he meeting was attended by

more than 300 persons from insurers, securities companies, IT

irms, e-commerce companies, distributors, and so on, including

Mirae Asset Securities, KB Financial Holdings, Shinhan Financial

Group, LG CNS, DBK Partners, Daum Kakao, KT, SK Telecom,

and LG U+.

“Shareholder lineup and business planning are two of the

most important factors for preliminary approval,” the FSS ex-

plained, adding, “We would like to ask you to set up your plans

during the remaining period in view of the fact that we are fo-

cusing on IT-inance convergence rather than commercial banks’

largest shareholder status.” A couple of companies are scheduled

to be given preliminary approval in Dec. this year ater the iling

of applications from Sept. 30 to Oct. 1.

According to the FSS, the minimum capital requirement is

100 billion won (US$85.9 million), equivalent to the average of

those of commercial banks, and Basel I is adopted with regard

to capital adequacy. A liquidity coverage ratio of 70 percent is

INTERNET BANK

Industrial Capital Allowed

to Own 10% of

Internet Banks

by Jung Suk-yee

applied to preliminary approval and inal approval alike. Non-i-

nancial business operators’ shareholder ratio is limited to 4 per-

cent, but the percentage can be allowed to go up to 10 percent on

the condition that the voting rights pertaining to the extra shares

are waived.

he shareholding ratio of a inancial business operator, which

is deined as a company that has a non-inancial capital ratio of

less than 25 percent or total non-inancial assets of less than 2

trillion won (US$1.7 billion), is limited to 10 percent, but can be

increased to 100 percent by the approval of the FSS. his means

that only inancial business operators such as securities compa-

nies, insurers, holding companies in the banking sector, and in-

dependent banks can become the largest shareholders as of now.

Companies holding insurers or inancial investment irms can

own the status, but they have to change into bank holding com-

panies upon having an Internet primary bank as a subsidiary. A

bank associated with a bank holding company cannot become

the largest shareholder. “he government is negative about ex-

isting banks’ participation in Phase 1, and thus it is likely that

non-banking sector players and IT irms will form a number of

consortia,” said an industry insider.

“In a case where a inancial business operator and industrial

capital form a consortium together and they oicially agree to

exercise their voting rights together, the contracting parties are

regarded as a single entity according to the Banking Act, and the

consortium’s shareholding ratio is limited to 4 percent,” the FSS

stressed with regard to this point. It is said that the FSS, in doing

so, seeks to prevent the joint exercise of voting rights while allow-

ing a physical coupling between industrial capital and a inancial

business operator.

It will possible for Korean inancial technology (intech)

companies to develop services by downloading standardized

technical speciications from banks and securities companies

during the irst half of next year. In addition, a testbed to check

whether or not developed inancial services really work in com-

puter networks is expected to be commercialized.

OPEN FINANCES

Fintech Firms to Build

Open Fintech Financial

Platform

by Cho Jin-young

Fintech

44

With the inancial technology (intech) craze in the inan-

cial and IT sectors, the number of companies registered as elec-

tronic inancial business operators from Jan. 1 to July 17 of this

year is said to be the highest since 2007.

Eleven companies entered the electronic inancial business

sector between Jan. 1 and July 17, according to data on electronic

inancial business enrollment published by the Financial Services

Commission and the Financial Supervisory Service on July 20.

As a result, 78 companies are currently involved in 135 kinds of

electronic inancial businesses.

he number for this year is the highest since the Electronic

Financial Transaction Act was implemented in 2007. A total of

30 companies were registered as electronic inancial business op-

erators in total that year when registration began. In 2008, 9 new

companies were enrolled, but the number declined to 3 compa-

nies in 2009, 5 in 2010, and another 5 in 2011. Six other compa-

nies in 2012, four in 2013, and seven in 2014 were included as

e- inancial business operators. he combined igure for 2013 and

2014 is the same as the number of registered companies from Jan.

1 to July 17 of this year.

Oicials in the inancial and IT sectors believe that if this

trend continues, it is possible to see 20 new companies enroll as

e-inancial business operators by the end of this year.

FINTECH CRAZE

Electronic Financial

Business Operators

Registered Actively

by Cho Jin-young

he Financial Services Commission (FSC) held its third

demonstration day for intech support centers at the Creative

Economy Innovation Center in Pangyo, Gyeonggi Province on

July 15, announcing its plan for building an “Open Fintech Fi-

nancial Platform.”

“We will build an ‘Open API’ system that provides inancial

service programs necessary for intech companies in a standard-

ized form by the end of the irst quarter of next year, in partner-

ship with 17 banks, 15 securities companies, the Korea Financial

Telecommunications & Clearings Institute [KFTC], Koscom,

and the Financial Security Institute,” said Vice Chairman Jeong

Chan-woo of the FSC, who attended the event. An application

programming interface (API) refers to a program command that

helps people make applications more easily.

he open platform is the combination of an open API that

ofers inancial companies’ services in a standardized form, and

a testbed that for developed inancial services in computer net-

works. KFTC and Koscom will build an API for the banking sec-

tor and an API for the inancial investment industry, respectively,

in the form of a portal. Later, intech companies will be able to

download and utilize the technical speciications for the develop-

ment of services.

he nation’s inancial regulator believes that the construction

of the open platform will drastically reduce the time and cost nec-

essary to develop intech services. For example, when the API to

check an individual bank balance is made public, it will be possi-

ble for intech irms to create a new household ledger app with a

function that enables people to check their bank balance by add-

ing the API to an existing household ledger app. On top of that, 17

banks will be able to use the open platform, since the API is stan-

dardized. An FSC oicial noted, “If the open platform is built as

planned, it will be the world’s irst case.” he oicial added, “he

construction of the open platform will serve as an opportunity for

our country to grow from a latecomer to an advanced nation in

the intech ield.”

45

ICT

Before the rollout of Samsung Electronics’ mobile payment

platform Samsung Pay in Sept., the company is strengthening

tests on its technology with card companies for the last time.

Samsung is struggling due to the fact that its technology to send

information to card readers at checkout counters through mag-

netic ields does not work as smooth as was thought.

According to inancial industry sources on July 2, Samsung

Electronics is conducting various technical tests with eight do-

mestic card companies before the oicial launch.

he payment of Samsung Pay, powered by Loop Pay, works

like this. First, a user creates a replica of a card’s magnetic in-

formation, which is represented as a card on the mobile device

COMING SOON

Samsung Pay in Final Tests

with 8 Local Card Firms

Samsung Pay uses Near Field Communication to transmit payment information.by Cho Jin-young

screen. Second, the user authenticates their own identity by put-

ting a inger on the home button of the smartphone. When the

user does this, the smartphone recreates the magnetic ield of

the card. hen, the magnetic ield created by the smartphone is

used to activate a Credit Authorization Terminal (CAT) just like

a physical plastic card.

But the rumors are that the ingerprint veriication and mag-

netic ield formation still don’t work correctly, so Samsung Elec-

tronics keeps testing the technology with card companies. Since

Samsung Pay requires users to verify their ingerprints on mobile

devices and form magnetic ields every time they pay at checkout

counters for security reasons, it is crucial to reduce error rates for

quick payment.

FINGERPRINT-BASEDVERIFICATION

iPhones Dominating Local

Biometric Mobile Payment

Services

The iphone’s ingerprint reader in action.

The nation’s iPhone users are said to be more actively utiliz-

ing local mobile payment services through ingerprint identiica-

tion than those who own Android phones.

Since May, the number of iPhone owners who have used mISP

through ingerprint identiication is much higher than those who

have used Android devices, according to online payment service

provider VP on July 13.

mISP refers to a mobile payment system that is used to con-

irm user identity via a mobile device. VP started to provide mISP

based on ingerprint identiication to certain mobile devices in

May, going beyond the existing method using passwords. he ser-

vice is currently available on nine models – the Galaxy S5, Galaxy

S6, Galaxy S6 Edge, iPhone 5s, iPhone 6, iPhone 6+, Vega Secret,

Vega Secret Note, and Vega Secret Up.

According to VP, iPhone users constitute 94 percent of the

200,000 people who have used its ingerprint-based mobile pay-

ment service from May. On the other hand, the igure for Sam-

sung phone users is only 5 percent, and those who own Pantech

phones represent merely 1 percent of the total.

Meanwhile, women in their 20s make up 50 percent of people

who used the mobile payment service, and most of them used the

service to purchase goods at social commerce sites like Coupang

or Ticket Monster.

Mobile Payment

46

There are increasing concerns about the possibility of Chi-

nese and European communications equipment suppliers domi-

nating the Korean 5G mobile communications market.

According to industry sources on July 21, three local mobile

carriers and the Ministry of Science, ICT and Future Planning are

accelerating eforts to develop 5G tech, but most of them rely on

foreign enterprises for development.

he three carriers are actively seeking technical partnerships

with large foreign companies prior to 5G commercialization in

2020. KT opened an R&D center for 5G tech inside its research

center in Seoul in June, which has a 5G test environment for a

991.5 m2 complex. he nations’ second-largest carrier opened this

facility exclusively to Ericsson, Nokia, Alcatel-Lucent, Huawei,

and ZTE. SK Telecom and LG U+ also announced their plan to

UNCOMPETITIVE 5G TECH

Korea Just Playground for

Foreign Equipment Suppliers

build a testbed together with foreign telecoms equipment makers.

he local communications equipment industry is worried

about the possibility that foreign companies will dominate the

local 5G mobile communications market, as in the case of LTE.

Mobile communications networks were mainly composed of base

stations and repeaters until the 3G era. Large local companies

built base stations using foreign equipment, but the local industry

was in charge of repeaters.

In the LTE era, however, foreign companies replaced repeat-

ers with remote radio heads (RRHs). he role of RRHs is simi-

lar to that of repeaters, but foreign communications equipment

suppliers did not disclose the standard technology that connects

large base stations and RRHs, thereby virtually dominating the

industry. As a result, local small and mid-sized companies that

produce repeaters were in imminent danger of collapse.

by Cho Jin-young

The MWC Shanghai, which is emerging as Asia’s largest

mobile exhibition, started at the Shanghai New International

Expo Centre (SNIEC) on July 15.

A total of 116 ICT companies and 97 mobile carriers around

the world will attend the event, titled “Mobile Unlimited.” In par-

ticular, South Korea, China, and Japan are expected to compete

to take the initiative this year in next-generation techs like IoT

and 5G. Since those three countries are conducting psychological

warfare to be the irst to commercialize 5G, competition to lead

5G is likely to intensify through this event.

hree local mobile carriers are reportedly actively seeking

global partners that can deliver 5G services, diferent from exist-

ing mobile telecommunications services, through MWC Shang-

hai 2015. As a result, much attention is being paid to the results of

global partnerships for 5G.

KT, the nations’ second-largest mobile carrier, built LTE-H

WiFi infrastructure capable of delivering data transmission speeds

ACTIVELY SEEKING ALLIES

Korea, China, Japan Mobile

Carriers Compete to Lead 5G Kim Sun-tae, managing director of LG U+, poses for a picture after

receiving an award for the company’s contribution on Voice over

LTE, LTE-based voice call connections, on behalf of LG U+ in MWC

Shanghai 2015 on July 15.

three times faster than Wi-Fi at the venue, proposing a blueprint

for GiGAtopia, a mobile environment connected through super-

fast gigabit technology.

SK Telecom set up a largest booth to showcase its smart home

and 5G techs, along with three local start-ups. With the opening

of the event, the carrier also signed a Memorandum of Under-

standing with Intel to cooperate on the research and development

of 5G tech. SKT and Intel decided to develop a terminal that is

usable and compatible in all communications networks in the

belief that it is essential to develop this kind of terminal for 5G

commercialization.

LG U+ forged a partnership with Huawei to lead 5G standard-

ization. he two companies are planning to cooperate in overall

networks, including the development of tech, equipment, and

network solutions to prepare for the 5G era, which is expected to

begin in earnest in 2020. he carrier is also going to demonstrate

how to connect to its VoLTE service, a high-quality voice call ser-

vice using LTE networks of mobile carriers.

ICT 5G Tech

47

ICT

SITUATION REVERSED

Small Game Makers

Becoming Subcontractors

to Chinese Firms

A screenshot from a game created by N2play, a Korean mobile game company.

According to industry sources on June 29, small and me-

dium-sized Korean gaming companies are under attack from a

large number of foreign mobile game developers. hey are also

sufering from large local gaming companies’ domination of the

market and a delay in the government’s support.

he weight of foreign games in the top 50 mobile games in

the nation is showing an upward trend for three years in a row

from 18 percent in 2013, to 20 percent in 2014, and to 32 percent

as of May 2015, according to Nielsen-KoreanClick. he upward

trend can be ascribed to the growing penetration of foreign game

developers into the local market and local gaming companies’ ef-

forts to distribute foreign games.

Among foreign game developers, Chinese ofensive is the

most noticeable. In addition to establishing local branches in

the nation, Chinese gaming companies like Longtu Games and

Locojoy entered the Korean market this year by acquiring local

companies listed on the KOSDAQ market.

An increasing number of local gaming companies are also

importing popular mobile games in China. Prime examples are

Samgumho and Master Tanker 2 imported by Nexon, Crouching

Tiger Hidden Dragon and Reversworld imported by Netmarble

Games, and Webzen’s Muorigin. Hence, it is getting more dii-

cult for small and medium-sized game developers to create new

games.

Chinese companies used to be subcontracted by Korean irms

to develop games, but the situation has reversed.

A head of a local gaming company remarked, “Two years

ago, the weight of games made at the request of foreign irms was

minimal, less than 10 percent of the total,” adding, “But the pro-

by Jung Min-hee

FLOURISHING ABROAD

Korean Game Makers

Take Smooth Root

in Global Market

A screenshot from the popular mobile game “Everybody’s Marble,” by Netmarble.

portion of outsourcing game projects from large Chinese game

developers such as Tencent, YuuZoo Corporation, and Giant In-

teractive amounts to 40 percent this year.”

he current market structure of mobile games that is virtually

dominated by large gaming companies is also making small and

mid-sized game developers struggle in the market. As of June 29,

50 percent of the top 10 mobile games and 60 percent of the top 5

mobile games on Google Play all belong to Netmarble Games, the

nation’s largest mobile game developer. hree games in the top 5

are owned by Netmarble Games’s ailiates such as Netmarble ST,

Netmarble Nexus, and Netmarble N2. he rest are Chinese or Eu-

ropean games. According to Nielsen-KoreanClick, foreign games

made up 18 percent of mobile games in the top 50 as of May 2013,

a year-on-year decrease of 24 percent.

An industry source pointed out, “Local small and mid-sized

game developers are increasingly dependent on Chinese capital

to survive. So, I think that at the end of the day, most of them will

become subcontractors who only develop games demanded by

Chinese irms.”

South Korean game developers are achieving success in the

overseas market. he games are seeing long-term results and

meaningful performance in terms of cumulative sales. Domestic

game makers have entered the overseas market to avoid the lim-

its of the domestic market and the government’s excessive regu-

lations, and it’s working. hey are expanding sales and securing

long-term popularity in the overseas market, and expectations

are growing that it could be the signal for Korean game makers

to succeed in making a sot landing in the global game market.

According to industry sources on July 12, Netmarble Games’

mobile game “Everybody’s Marble” posted 400 billion won

Game

48

According to market research institution Nielsen Korea on

July 14, the number of mobile game app users with Android OS

stood at 19.95 million last month. he igure has decreased by

850,000, or 4.11 percent, from the 20.81 million of June last year.

It is the irst time in the last two years that the monthly number of

game app users has shown a year-on-year decrease.

In particular, the number of game app users is on the decrease

this year, even though the total number of mobile app users is

steadily increasing. his year, the igure dropped from 21.66 mil-

lion in Jan. to 21.58 million in Feb., showing a 0.4 percent de-

crease. hen, the igure decreased by 1.3 percent to 21.29 million

in March, by 0.6 percent to 21.16 million in April, by 3.8 percent

to 20.36 million in May, and by 2 percent to 19.95 million in June.

he number of game app users has decreased for ive consecutive

months.

In contrast, the number of total mobile app users has in-

creased for four consecutive months, from 29.74 million in Feb.

to 30.35 million last month.

his decrease in users is happening despite an overlow of

mobile game apps in the market. According to data from the

Game Rating and Administration Committee, the number of

mobile games that market operators and the committee rated for

the domestic market increased by 5.6 percent, from 360,000 in

2012 to 380,000 in 2013. Also, the igure grew as much as 37 per-

cent, to 520,000 last year from a year earlier.

Accordingly, competition among game makers based on

large-scale marketing campaigns to win users will continue to

grow in the mobile game market. In fact, game makers have

started marketing their products through TV commercials

in earnest in the domestic mobile game market from the sec-

ond quarter last year, and the cumulative TV commercial costs

amount to a whopping 91.7 billion won (US$80.29 million) as of

the irst quarter of this year.

NO MORE MOBILE FUN

Mobile Game App Users

Decrease for 5 Consecutive

Months

The number of mobile game app users has decreased for the irst time in the last two years. It clearly shows stagnation in the growth of the domestic mobile game market.

(US$353.95 million) in global cumulative sales as of the irst

quarter of this year, ranked in 10th place in terms of global, com-

bined mobile game sales of the Google Play Store and Apple’s

App Store. he success was largely due to its high popularity in

the markets of China, Japan, Taiwan, hailand, Indonesia, and

Korea.

According to a survey conducted by mobile analytics com-

pany App Annie and market research institution IDC, it was the

only Korean mobile game which made the top ten in terms of

sales.

Even though two years have passed since “Everybody’s Mar-

ble” was launched in June 2013, it is still recording a high number

of downloads and sales at home and abroad.

Also, it’s been a year since Com2uS’ role-playing game (RPG)

“Summoners War,” which Google mentioned as a successful case,

hit the market, but it is still in the high ranks of sales in the app

markets of 80 countries across the world.

Industry watchers say that domestic mobile games are pass-

ing the limits of short-cycle mobile games and becoming popular

long-running games that bring long-term sales. Since the genres

of the games are not one-sided, it is possible to implement a di-

versiication strategy.

All successful companies in the global market have one thing

in common - they have learned about the local market and cul-

ture by establishing overseas branches.

Com2uS has set up its branches in China and Japan in 2003

and the U.S. in 2005, accumulating the necessary expertise to

tap into the global mobile gaming market. his move puts the

company in the position to carry out several custom marketing

campaigns to promote “Summoners War” in the U.S. and Japan,

industry sources said.

Recently, there is a growing number of companies that look

up to these more successful leading companies. Korean mobile

publisher Gamevil has opened an oice in Berlin, Germany,

called Gamevil Europe, in order to expand into Europe. Estab-

lishing new branches in Singapore and Taiwan as well last year,

the company will provide local customer service and support for

languages of up to seven European countries including Germany,

France, and Russia, starting aggressive marketing.

In Europe, Gamevil’s mobile RPG “Monster Warlord” is en-

joying continuing popularity, and “Kritika: he White Knights”

and “he Dragon Blaze” are also winning positive responses.

49

INDUSTRY

MARKET INSIGHT

Unexpected Factors Driving Mobile

Commerce Boom in Korea

by Marie Kim

Overall foot traic to many mall-

based retailers has been declining for

years, and according to local media in

Korea, apparel store traic hit its lowest

mark in 17 weeks in mid-June thanks to

the MERS panic. Prior to that, overall

domestic demand has been dropping in

proportion to rising household debt and

global economic uncertainty. With the

threat of MERS, households seemed to

tighten their wallets.

However, the decline of the Korean

pastime of shopping at the mall isn’t nec-

essarily a bad sign for other businesses.

While most mall-based retail businesses

struggle to survive the declining econ-

omy, online transactions and mobile

shopping are thriving. Everyone knows

that e-commerce is a constantly-growing

segment of the larger retail and commerce

landscape, but most probably don’t know

that mobile commerce is growing at an

even faster rate.

According to the Korea Chamber of

Commerce & Industry (KCCI), South

Korea’s mobile market has more than

doubled in value every year since 2010.

Using smartphones to buy products

and services has become so common-

place that it represents nearly one-third

of all web-based sales. In a 2014 study,

Bloomberg estimated that the mobile

market would reach 800 percent growth

by end of 2015, compared to the initial

period.

he proportion of sales from mobile

shopping to all web-based shopping con-

tinues to rise, too. he turnover of online

shopping during Q4 last year was 12.7410

quadrillion won (US$11.1378 trillion), a

21 percent increase from the same period

the previous year. In Q1 2015, the propor-

tion of the turnover of mobile shopping

to that of all web-based shopping was 107

percent, which translates into an increase

of mobile shopping and a turnover of

4.8760 quadrillion won (US$4.2636 tril-

lion). In comparison with Q4 2014, the

turnover of all web-based shopping in Q1

2015 increased by 11.3 percent, while mo-

bile shopping increased by 24.9 percent.

Among several local companies,

Coupang and Wemakeprice are prom-

inent in devoting a large proportion of

50

their business (80 percent) to mobile

shopping. Other mall-based retailers are

scrambling to adapt to the changing land-

scape of the retail industry.

According to local weekly magazine

Maeil Kyung (MK), in the case of Home-

plus, the proportion of mobile sales to all

web-based sales rose to over 50 percent

in April last year. Sales revenues from

mobile shopping marked a 112 percent

increase from the previous year. he

number of app downloads reached over

4 million.

Mobile Behavior

But why is mobile shopping growing

so quickly? To better understand these

trends, one needs to understand the be-

havior of people doing mobile shopping.

For instance, it turns out that consumers

look primarily to their phones to shop

for clothing and fashion-related products

(72.3 percent), household goods and dia-

pers (44.8 percent), car accessories (30.1

percent), consumer electronics (30.3 per-

cent), and communication equipment

(27.6 percent).

he most common method of pay-

ment for mobile shoppers is paying by

credit card (53.2 percent), followed by so-

called simple payments or a speciic ap-

p-based payment method (16.3 percent),

paying by debit card (14.5 percent), pay-

ing via phone bill service (8.4 percent),

and wire transfer payments (7.6).

Another insight into this trend is the

important distinctions between mobile

shopping behavior and online or in-store

behavior, especially among women.

Mobile-channel shoppers have a dis-

tinct demographic in South Korea. Ac-

cording to data compiled by MK, women

account for 60 percent of transactions.

Additionally, most are in their 30s and are

likely to have preschool children.

hey are also, somewhat surprisingly,

likely to be full-time housewives. here

has been a widespread assumption that

mobile shopping is dominated by busy

working moms. In fact, working moms

spend more time in front of a PC, mostly

at work, while housewives are more likely

to use their smartphones to shop.

In contrast to the bargain-searching

mentality that dominates online shopping,

mobile shoppers prioritize intuitively easy

search and convenient shopping experi-

ences. According to research conducted

by Mckinsey & Company, more than 60

percent of South Korea’s mobile shoppers

cited convenience as their top priority,

compared with 44 percent of online shop-

pers. Mobile shoppers want quick satis-

faction. heir purchasing decisions are

oten governed by impulsive or emotional

factors – which encompass product cate-

A graph of monthly online commerce igures over the past year. The trend of Internet shopping (blue) is decreasing, while mobile shopping (red) is increasing.

gories including apparel, fashion accesso-

ries, and shoes – or habit, such as buying

groceries and kid/baby items.

Companies like Coupang have no-

ticed this trend, and have aggressively

targeted mobile-savvy young moms by

ofering baby gear such as diapers at low

prices in their mobile app. In addition, by

launching its own delivery system called

Rocket Delivery in 2014, Coupang has

been able to provide faster delivery ser-

vices for its shoppers at no additional

charge. “We introduced Rocket Delivery

to send goods to customers in a faster

and safer manner across the country. his

revolutionary service has greatly boosted

customer satisfaction,” a Coupang spokes-

man said. he company currently oper-

ates eight warehouses across the nation

and employs about 1,000 delivery people

to realize the fast and convenient shop-

ping experience for regular customers.

Other retailers, both online and of-

line, could take notes from the current

booming m-commerce market in Korea.

Namely, it is essential to note the unique

demographics and characteristics of the

majority of mobile shoppers who drive

the boom in mobile commerce in Korea.

Also, one should note that fast, conve-

nient delivery is an integral part of a suc-

cessful business strategy.

INDUSTRY Industry Highlight

51

INDUSTRY

Eight Korean items occupied the top

spot last year in the global markets for 50

major products and services. Even though

the number of export items occupying

a top ranking position in world markets

increased in 2014 compared to 2013, the

gap with China and Japan in major items

like smartphones is narrowing.

A total of eight locally-made products

and services held the top spot in world

markets, including shipbuilding, smart-

phones, small and mid-sized LCD panels,

and lithium-ion batteries, according to

a report on the share of global markets

for major products and services in 2014

PRECARIOUS LEAD

Korea Maintains Top Position in

8 Products, Services

byJung Suk-yee

published by the Nihon Keizai Shimbun on

July 5. he nation additionally nabbed the

top position in shipbuilding and small and

mid-sized LCD panels last year, an increase

of two items from 2013. Out of 50 items,

the U.S. ranked irst with 16 items, and 10

items were from Europe. he number for

Japan was 9, one more than Korea’s rank,

while China had 6 top-ranked products

and services. he U.S. and Japan saw the

number decrease by two items compared

to the previous year, but China maintained

the previous year’s level.

Data shows that Korea’s position in the

global market is strengthened, but some of

the locally-made products and services

are likely to lose the number one posi-

tion in the market within years.

In the case of smartphones, the mar-

ket share of Samsung Electronics (24.5

percent) and Apple (14.8 percent) both

declined by a small margin, but Chi-

nese companies are closely following

the two dominant players. Speciically,

Lenovo, the third-largest handset maker,

comprised 7.2 percent, a year-on-year

growth of 2.7 percent. Huawei, which

was in 4rd place, captured 5.7 percent of

the global smartphone market in 2014,

up 0.9 percent from a year ago. Sam-

Global Competitiveness

52

sung’s share has continued to drop, ater

the number exceeded 30 percent in 2013,

which was its best year.

As for lithium-ion batteries, Samsung

SDI is maintaining its iron-isted grip on

the market, but it is chased by Panason-

ic’s electric cars. According to market re-

search irm B3, Samsung SDI, LG Chem,

and Panasonic account for around 70

percent of the lithium-ion battery mar-

ket. Among those companies, the Japa-

nese irm is jointly conducting a project

to build the Gigafactory, a US$5 billion

structure aimed at annually producing

500,000 lithium-ion batteries by 2020 in

partnership with Tesla Motors.

When it comes to large LCD pan-

els for TVs, Chinese display makers are

highly likely to snatch the top spot from

their Korean rivals in the market, as the

former is greatly increasing the supply

of panels to meet domestic demand. he

Korea Display Industry Association said

that the weight of Chinese LCD panels for

TVs approached 40 percent last year, and

the number will surpass 50 percent this

year.

Although the nation reclaimed the

top position in the global shipbuilding

market in 2013, competition with China

and Japan is still intense. But the good

news is that LG Display constituted 18.1

percent of the small and mid-sized LCD

panel market, which placed the irm in

the number one position, beating Japan

Display (16.0 percent) and Sharp (15.6

percent).

A Korean research institute’s data also

shows that Korea’s competitiveness in the

communication and information device

sector, such as cellphones and laptop PCs,

has overtaken by China in the Japanese

market, and the country urgently needs to

recover its international competitiveness.

Korea Economic Research Institute

(KERI) announced on June 29 that there

are warning signs ahead for Korea’s infor-

mation technology equipment industry

in a report called “Korean Information

Technology Equipment Industry’s Inter-

national Competitiveness Comparison of

Korea, China and Japan and Policy Pro-

posals.”

Ater an analysis of the international

competitiveness index of 193 items in

the information, communication, parts,

and broadcasting equipment industry

from 2009 to 2014, the report said that

Korea’s index is lower than that of China

in the communication and information

equipment sector, and lower than Ja-

pan in the parts sector, including system

semiconductors, on the trade between

Korea, China, and Japan. Also, the trend

becomes more permanent.

In particular, Korea’s exports of cellp-

hones and LCD panels, the major export

items of the country, are overtaken by

China in six years in the export compe-

tition to Japan.

China has a comparative advantage

in various sectors in the Japanese market,

including the cellphones, LCD panels,

laptop PCs, secondary storage, multime-

dia card, wireless communication device

parts, photoelectron, and broadcasting

equipment sectors.

he trend is more noticeable in the

cellphone and LCD panel sectors. Ac-

cording to KERI’s comparative advantage

index, Korea’s igure in the cellphone sec-

tor decreased from 5.36 in 2009 to 1.65 in

2014, while China’s igure increased from

2.04 in 2009 to 2.09 in 2014.

Also, the Korean index in the LCD

panel sector signiicantly dropped from

18.47 in 2009 to 2.57 in 2014. However,

the Chinese index, which had a large

gap with Korea in 2009, grew from 3.74

in 2009 to 13.4 in 2014, increasing by 3.5

times.

he report said that Korea needs to

upgrade its global production system and

network in order for domestic companies

to be specialized in high value added pro-

duction process in the reorganization of

production sharing structure in North-

east Asia.

In order to do so, the country needs

to upgrade its global value chain by rais-

ing China’s status from the existing spe-

cialization structure using it as its global

production base to an intermediate coop-

erative partner, suggested the report.

Also, it stressed, “As the export struc-

ture of the domestic information tech-

nology device sector has changed from

complete products to parts, Korea should

promote exports of high value added key

components by strengthening core tech-

nology development.”

he KERI also advised that Korean

consumer electronics manufacturers

sharpen their competitive edge by means

of high-end products using the Internet

of hings and advanced sensing technol-

ogy with Chinese manufacturers growing

much faster than they are.

According to its recent report, Chi-

nese home appliances and machinery

manufacturers’ revealed comparative

advantage (RCA) increased from 1.86 to

2.1 between 2009 and 2013, while that of

Korean companies edged up from 1.75 to

1.78. During the same period, the RCA

declined from 1.59 to 1.56 for Japanese.

he report also pointed out that the

ratio of electronics exports to total ex-

ports soared from 2 to 32 percent for

China between 1992 and 2014, whereas

Korea’s igure went up by no more than

1.4 percentage points to 6.2 percent, and

Japan’s dropped from 19.6 to 5.9 percent.

he institute mentioned an increase

in yuan-based trade settlements resulting

from the internationalization of the Chi-

nese currency as a big change to come.

hese days, the Chinese yuan is gradually

taking the place of the U.S. dollar in trade

with China. Yuan-based payments be-

tween Korea and China accounted for 0.8

percent of the total yuan-based payments

in 2012, but the percentage rose to 1.8 in

the irst two months of 2013.

53

INDUSTRY

As the news broke that China will jump into the memory

semiconductor business by taking over U.S.-based Micron Tech-

nology Inc., the fourth largest semiconductor manufacturer in

the world, Samsung Electronics and SK Hynix have been put

on emergency alert. he report has not been conirmed yet, but

there are increasing signs that China will start the memory busi-

ness. Accordingly, there is growing concerns that it could jeopar-

dize the dominant position of Korean companies in the memory

sector.

According to foreign press reports on July 14, Chinese state-

owned semiconductor chip designer Tsinghua Unigroup Ltd. of-

fered to buy U.S. memory chipmaker Micron Technology Inc. for

US$23 billion (26.2 trillion won). If the M&A is completed, the

deal would be the largest Chinese takeover of a U.S. irm. Mi-

cron is currently sufering from a downturn in business due to

the drop in the price of PC DRAM, its main product. Tsinghua

The global semiconductor market is expected to slow down

for a couple of years due to the sluggish demand for PCs and

smartphones. Under the circumstances, Samsung Electronics

and SK Hynix are increasing their DRAM supply volumes, sig-

naling a supply glut from the second half of this year.

According to industry sources, Samsung Electronics is cur-

rently producing 20-nm class DRAM in quantity in its Line 17

fab located in Hwaseong City, Gyeonggi Province. At present, an

average of 30,000 to 40,000 wafers are input into the fab a month,

equivalent to 10 percent of Samsung Electronics’ total DRAM

production. he company is planning to step up the volume until

next year. At irst, it was going to make system-on-chip products

there, but changed its plan due to the presence of Chinese and

Taiwanese fables irms in the application processor market.

SK Hynix produces DRAM in its M14 fab in Icheon City,

Gyeonggi Province, from the third quarter of this year, too. he

M14 fab, which is scheduled to take the place of its DRAM-pro-

ducing M10, is expected to have a monthly capacity of 15,000

wafers at the end of this year.

In the meantime, the global DRAM market is facing oversup-

ply. Market research irm Gartner recently forecast that the semi-

conductor market would record a growth of 2.2 percent this year

and 1.3 percent in 2016, while the size of the IoT semiconductor

segment would be limited to US$43.5 billion, 10 percent of the

market, in 2020 to fall short of expectations.

he long-term outlook is even worse. Samsung Electronics’

TOO MANY CHIPS

Supply Glut Looming

Large in Semiconductor

Market

by Cho Jin-young

by Cho Jin-young

facilities in Pyeongtaek City, Gyeonggi Province that will be put

into operation in 2017 are likely to become the largest mem-

ory manufacturing plant in the world, and Chinese companies

are expected to become fully operational in the global memory

semiconductor industry within ive years. Tsinghua Unigroup re-

cently declared that it would take over Micron Technology to set

foot in the industry.

“he Chinese government is planning to invest US$20 billion

in the sector so that Chinese irms can have a greater presence

there,” Gartner explained, adding, “Although this itself is enough

to jolt the global market, it seems that the total investment will

be raised up to US$100 billion by private-sector investors in the

end.”

IMPERIAL MOVE

Samsung, SK Hynix on

Alert for China’s Possible

Takeover of Micron

Semiconductors

54

cess, the TSMC is also thought to be skipping 14 nanometers and

going direct to a 10-nanometer process.

According to local media reports in Taiwan on July 8, the

TSMC will start risk production in its 10-nanometer processing

lines in the second quarter of next year and mass production as

early as the second half of next year. From this period, the com-

pany will also discuss cooperation in earnest with its largest cus-

tomers, Apple and Qualcomm.

Risk production is practically the inal phase of testing, and

the process to raise the yield rates for full-scale mass production.

For memory semiconductors, a company can sometimes actu-

ally sell some general-purpose products that have gone through

risk production. For system semiconductors, however, it can take

more time to mass produce, since they should it within the stan-

dards of graphics processor units (GPU) and modem chips.

Once the 10-nanometer foundry process is adopted, the clock

rates of application processors (AP) will improve up to 20 per-

cent, and power consumption will drop as much as 40 percent,

compared to existing 14-nanometer FinFET processes.

Industry watchers say that the TSMC could take an advan-

tageous position to win orders for Apple’s next-gen “A10” AP

for the iPhone before its competitor Samsung Electronics, if the

TSMC breaks through the phase of risk production before its

competitor. It means that whichever company that stabilizes its

10-nanometer process irst will win the contract.

At the moment, the TSMC is a step ahead of Samsung Elec-

tronics. he company has invested US$1 billion (1.14 trillion

won) in order to introduce its 10-nanometer process, as it fell be-

hind Samsung Electronics in the 14-nanometer FinFET process

race and lost major customers, including Apple.

In contrast, Samsung Electronics announced in April during

the result announcement conference call that its 10-nanometer

foundry process is possible from the end of 2016, and there is

still no change in the plan. he company is planning to expand its

market share irst of its existing 14-nanometer FinFET process.

However, the possibility cannot be ruled out that Samsung

Electronics will move up the mass production date, as the amount

of supply to Apple will decide the performance of Samsung’s Sys-

tem LSI division. Notably, the company unveiled an actual 12-

inch wafer using its 10-nanometer process in May, which was an

unusual move for the company.

Unigroup is a state-owned company set up by academics at the

elite Tsinghua University in 1998. It has become China’s largest

semiconductor company by acquiring China’s two major mobile

chip producers in 2013, Spectrum Communications and RDA

Microelectronics.

Industry watchers believe that Tsinghua Unigroup’s takeover

of Micron is unlikely to happen. A Tsinghua Unigroup spokes-

man said, “he deal is still under discussion,” while a Micron

spokesman said, “he company has not received a buyout ofer,”

and declined further comment. A low ofer price is another rea-

son. Tsinghua ofered US$21 per share for Micron, which is at a

19.3 percent premium to stock close on July 13.

With the takeover ofer, however, China is expected to en-

ter the memory semiconductor market, and the market power

of Samsung Electronics and SK Hynix could be on the line in the

long term.

According to local industry sources, China’s leading display

company BOE Technology Group is also considering whether or

not to tap into the memory market this year. Hyundai Securities

analyst Park Young-joo said, “I don’t think the Committee on

Foreign Investment in the U.S., a panel of representatives from

more than a dozen departments and agencies across the U.S.

government, will allow a Chinese company to acquire Micron.”

However, we should keep an eye on the movement of Chinese

companies to advance into the semiconductor business.” he

Chinese government has already been seeking opportunities

for expansion into the memory market. As the country imports

memory chips worth more than US$230 billion (265 trillion

won) a year, China plans to begin home production of the prod-

ucts without fail.

Samsung Electronics is getting nervous at the news that Tai-

wan Semiconductor Manufacturing Co. Ltd. (TSMC) will start

testing the mass production of a 10-nanometer FinFET process

next year. Just like Samsung’s strategy last year of successfully

securing orders from Apple and Qualcomm by bypassing the

20-nanometer process and going straight to a 14-nanometer pro-

SMALLER AND SMALLER

Competition between

Samsung & TSMC in

10-nm FinFET Market

Heats Up

by Cho Jin-young

55

INDUSTRY

Samsung Electronics was granted a patent for bendable and

lexible displays for TVs and tablet PCs. he patent was iled with

the United States Patent and Trademark Oice (USPTO) last year.

he patent is receiving a lot of attention in the industry, since

it is for both OLED and LCD displays.

According to the USPTO on July 9, Samsung Display was

granted a patent for LCD and OLED displays (Patent US 9078362)

on July 7 this year, ater irst iling it on May 1, 2014. he tech-

PATENTED FLEXIBILITY

Samsung Awarded Patent for

Flexible Displays for TVs

by Cho Jin-young

nology is about making lexible display panels and circuit boards.

his patent is likely to play no small part in developing fold-

able smartphones that Samsung is planning to release in 2016. It

will be possible to use this patent for TVs and tablet PCs that are

8” or more, according to Samsung in a document submitted to

the USPTO.

It is most notable in that a way to make foldable LCD displays

is apparently possible, although it has been diicult to do so.

As Chinese LCD makers are expected to outperform Ko-

rean rival companies in 8th-generation panels from next year,

Samsung Display and LG Display apparently intend to expand

their facilities for OLED panels.

According to industry sources on July 9, Samsung Display

started to operate its A3 line for small and medium-sized lexible

OLED displays last April, planning to continue investment in its

A2 line for small-to mid-sized OLED panels within the year. he

decision is attributable to the belief that it will be more beneicial

to reduce cost by changing existing equipment in the A2 plant

so that it can be used to make lexible OLED panels, rather than

making a second investment in its A3 line right away.

he A3 line, which was already invested in before, can pro-

duce up to 30,000 units a month. A source close to Samsung Dis-

play explained, “he operation of the A3 plant is still in its early

stages. Since there is still enough free space, the plant will have

much more production facilities in the mid-long term.”

LG Display is also cautiously preparing to enlarge its OLED

production facilities. Some in the industry recently said that the

company will invest up to 900 billion won (US$796 million) to

build a factory for small and mid-sized OLED panels in Gumi,

North Gyeongsang Province. However, a spokesperson for LG

Display said, “We are considering making an investment, but we

haven’t decided yet.”

QUALITY VS. QUANTITY

Korean LCD Industry to

Beat Chinese OLED Panels

he reason for the two companies’ focus on investing in

OLED production facilities lies in the fact that while Chinese

LCD makers are contributing to oversupply in the market, there

is a sluggish demand for TVs, PCs, and mobile devices.

Market research irm IHS iSuppli recently predicted that

Chinese LCD manufacturers would beat Korean competitors in

8th-generation panels next year. Chinese companies are expected

to produce 1.2 times as many 8th-generation OLED panels as

Korean irms in 2016. China’s 8th-generation OLED display pro-

duction capacity is currently 86 percent that of Korea.

As for OLED panels, the possibility of losing market domi-

nance to Chinese LCD makers for a short period of time is widely

acknowledged to be minimal due to the gap between Korea and

China in technology. Even though the dependence of LCD man-

ufacturers on part assembly is relatively high, OLED panels are

not easy to make, since it is necessary to vapor-deposit organic

or non-organic material on a glass or plastic substrate. herefore,

it is diicult for latecomers to get a yield rate of 98 percent with

OLED panels.

he OLED panel market, which was estimated at US$8.23168

billion in 2014, will grow from US$11 billion in 2015 to

US$12.63481 in 2016, surpassing US$20 billion in 2020, accord-

ing to market research irm DisplaySearch.

Display

56

MAGIC MIRRORS

Samsung Display Hurries

to Mass Produce Mirror

OLEDs

As Samsung Display has decided to bring forward the mass

production of its industry’s irst Mirror and Transparent OLED

display panels. It will start production in its A2 line from this year.

According to industry sources and the press in Hong Kong,

the Chow Sang Sang Group, which has numerous large jewelry

stores in Hong Kong and Macao, will introduce commercial dis-

plays using Samsung Display’s Mirror OLED panel technology

in its stores. he Chow Sang Sang Group runs nearly 190 jewelry

stores in China and Hong Kong.

Samsung Display’s Mirror OLED display panel has 75 per-

cent relectance, which is similar to actual mirrors. It will provide

a digital viewing platform to help consumers vividly see them-

selves wearing the necklaces and earrings that they might wish to

buy without actually wearing them. his augmented reality pro-

gram will be created when Samsung’s Media Player is integrated

with Intel’s Real Sense Solution.

Existing mirror LCD displays had about a 50 percent re-

lectance level, so it delivers only limited visibility. However, the

Samsung Mirror Display delivers an exceptionally high 100,000:1

contrast ratio and a much faster response time at less than 1 ms

than LCD transparent panels (4,000:1, 8 ms), as well as high re-

lectance levels.

Securing its client companies in advance, Samsung Display

is moving up the mass production of its Mirror OLED display

panels. he irst customer is the global digital marketing agency

Mirum. Mirum will sell commercial displays using Samsung’s

new technology under the name “Magic Mirror 2.0” to fashion

and jewelry companies, including the Chow Sang Sang Group.

Together with LG Display, Samsung Display is expected to

supply organic light-emitting diode (OLED) displays for Apple’s

next-generation smart watch.

LG Display has been the sole supplier of OLED displays for

the Apple Watch, which was released in April. Apple has, how-

ever, reportedly decided to add Samsung Display to its vendor list

for the OLED devices.

he move seems to be a part of the strategy of the U.S.-based

IT giant that usually makes contracts with two or three vendors

to secure a stable supply of its parts for smart devices. Apple

FRENEMIES FOREVER

Samsung to Supply OLED

Displays for Next Apple

Watch

cannot but make such a decision, as LG Display and Samsung

Display are the only manufacturers that can produce the lexible

OLED displays.

Apple has recently started working with the Korean display

manufacturers to develop lexible OLED displays for its next-gen

smart watch, which is expected to be lighter and slimmer than

the current Apple Watch.

Annual sales of the Apple watch may reach 10.5 million units

this year, according to market research irm Paciic Crest.

57

INDUSTRY

The Hyundai Motor Group, GM Korea, Ssangyong Motors,

and Renault Samsung Motors sold 135,218 cars in the Korean

market in June to record an 11.5 percent increase from a year ago

and an 11.3 percent increase from a month earlier. It was recre-

ational vehicles that led the growth. For example, the sales vol-

ume of the Hyundai Santa Fe increased by 3,615 to 9,073 between

May and June this year.

Hyundai Motor Company broke the 60,000 mark in three

months. Kia Motors sold 45,010 cars last month to show a growth

of 26.8 percent year on year. he sales volume of the Kia Sorento,

which made its debut in August 2014, amounted to 7,212 and

reached a new monthly high.

Ssangyong Motors’ volume added up to 8,420 in June, the

highest since 2005 and 63.3 percent more than that recorded in

June 2014. he Tivoli was chosen by 3,630 customers and ac-

counted for 43 percent of the company’s sales in the domestic

market. GM Korea sold 12,233 cars, 0.8 percent more than a year

ago, while Renault Samsung Motors’ volume declined by 20.7

percent year-on-year to 6,753.

In the meantime, Hyundai Motor Company exported 345,224

cars in June, 112,653 of them manufactured in Korea. he exports

decreased by 2.2 percent compared to the same period last year.

he sales from its overseas plants declined, although the ship-

ments from Korea increased. Speciically, the former decreased

by 7.6 percent from 251,680, whereas the latter showed an 11.3

percent increase from 101,240. he igures were 100,280 and

118,637 for Kia Motors, respectively. he combined volume in-

creased by 4.3 percent from a year earlier. Although the former

edged down by 4.0 percent, the latter increased by 12.5 percent.

GM Korea exported 42,953 cars in June this year, 9.3 percent

and 1.1 percent more than a year and a month ago, respectively.

Renault Samsung Motors’ export volume reached 10,211, show-

ing a 17.2 percent decrease from a month ago and a 245.4 percent

increase from a year earlier. Ssangyong Motors’ totaled 3,592,

dropping by 4.9 percent and 40.3 percent from a month and a

year earlier, respectively.

COVERING OVERSEAS DECLINE

Domestic Car Sales Showed

Some Recovery in June

by Jung Min-hee

The number of imported cars in Korea exceeded 6 percent

of the total registered vehicles this year. he number had broken

the one million mark last year.

According to the Ministry of Land, Infrastructure, and Trans-

port, the number added up to 1,245,157 as of the end of June to

show an 11.8 percent increase in comparison to that at the end of

2014. Likewise, the ratio went up from 5.5 percent to 6.1 percent

during the same period. hese igures are conspicuous, in that

the total number of vehicles registered in Korea edged up by 2.14

percent from 20,117,955 to 20,548,879.

When it comes to newly-registered vehicles, the number of

Korean cars increased by just 3.5 percent or 794,000 cars between

June 2014 and June this year, whereas that of imported cars

recorded a growth rate of 30.1 percent or 137,000 cars.

he number of imported cars in Korea had been much less

until 2002. However, it continued to increase since then and ex-

ceeded one million last year, when the Korea-EU FTA became

efective for zero tarifs on cars with an engine displacement of

at least 1,500 cc. he popularity of Japanese cars increased a lot

based on the weak yen, too.

In June this year, in particular, BMW Korea sold approx-

imately 5,500 cars in the Korean market. Its sales volume was

4,649 in May 2015 and 3,358 in June 2014, respectively. his is

the irst time that a non-Korean automaker sold more than 5,000

cars in Korea in a single month. As of the end of May this year,

BMW accounted for 19.32 percent of the Korean imported car

market, second only to Mercedes Benz by a margin of only 0.28

percentage points.

AUTO INVASION

Foreign Cars Exceed 6% of

Total Local Registered

Vehicles

Automobiles

58

POSCO ICT, in cooperation with Hyundai Motor, will be-

gin making full-ledged eforts to construct charging infrastruc-

ture for environmentally-friendly vehicles such as plug-in hybrid

vehicles and electric vehicles.

he company announced on June 28 that it has signed a

memorandum of understanding (MOU) with Hyundai Motor to

build eco-friendly car charging infrastructure. Hyundai Motor

has green car technologies, and POSCO ICT has practical expe-

riences in the charging infrastructure sector. With the MOU, the

two companies plan to form a close partnership in order to take

the leading roles in expanding the domestic eco-friendly vehicle

market.

here is further signiicance of the MOU, as charging stations

will be established in public facilities such as large discount stores

and theaters, which provides people with more access, unlike the

existing charging stations installed in public institutions that are

less accessible, said the company. Also, Hyundai Motor plans to

release its exclusive plug-in hybrid cars in the future, following

the new Sonata Plug-in Hybrid next month. It is expected to ac-

celerate the introduction of plug-in hybrid vehicles in the coun-

try.

Under the agreement, POSCO ICT and Hyundai Motor will

build 120 charging stations using Hyundai Motor’s own unique

design in large discount stores, department stores, and theaters

within this year. Also, POSCO ICT will secure the construction

sites, run the stations, and perform maintenance tasks on the sta-

tions.

Moreover, POSCO ICT will allow Hyundai Motor’s consum-

ers to use an additional 120 charging stations for more conve-

nience, which are scheduled to be constructed within this year,

as well as its 180 stations in Seoul, Gyeonggi Province, Busan,

and Jeju Island as the irst private operator. Currently, POSCO

ICT has already built and is operating 180 charging stations for

electric vehicles in Seoul, Gyeonggi Province, Busan, and Jeju Is-

land.

EXPANDING OPTIONS

Cooperation on

Eco-friendly Car Charging

Infrastructure

A total of 425,212 cars were recalled due to safety-related

deiciencies during the January-June period, with 335,040 local

manufactured cars in 20 models and 90,172 imported cars in 202

models, according to the Car Deiciency Report Center under the

Korea Transportation Safety Authority (TSA) on July 8.

he number of recalled vehicles increased by 25.7 percent, or

86,810, from the 338,402 posted in the same period last year. he

number of recalled models rose to 222 from 168 yeor-on-year,

with local brands at six and imported ones at 162.

By carmaker, GM Korea topped the list by recalling 217,884

cars, including Lacetti Premieres, Orlandos, Malibus and Al-

pheons, accounting for almost half of all vehicles recalled in the

country.

An oicial at GM Korea explained, “he company has taken

a policy to voluntarily recall vehicles with any faults since the ig-

nition switch-related recall occurred in the U.S.”

Hyundai Motors trailed GM by recalling 217,884 vehicles

including Avantes, Grandeur hybrids, Genesis, and i30ds during

the period. Kia Motors also recalled 53,721 cars.

Of foreign carmakers, Mercedes-Benz ranked irst by re-

calling 34,756 including some E-series, followed by BMW with

10,238, Ford with 5,594, Chrysler with 3,867, and Nissan with

3,827.

An oicial at the TSA said, “he number of cars recalled has

substantially increased since the middle of last year,” adding,

“he recalls are expected to reach 1 million this year.”

DEFECTIVE PRODUCT

GM Korea Tops List of

Car Recalls amid Sharp Increase

GM Korea’s plant in Gunsan, South Korea.

59

INDUSTRY

Despite the slump in orders, South

Korean shipbuilders have ranked irst in

the world for ive consecutive months.

According to the data compiled by

Clarkson Research Services, a leading

The Korea Gas Corporation (KO-

GAS) has joined hands with the nation’s

three major shipbuilders – Hyundai Heavy

Industries, Samsung Heavy Industries,

and Daewoo Shipbuilding & Marine En-

gineering – to establish the nation’s irst

specialized company to design liqueied

natural gas (LNG) carrier tanks.

A senior government oicial said on

July 20, “In July, KOGAS and the top three

shipbuilders have asked for permission to

build a joint venture company. he gov-

ernment’s approval will be given sooner

or later, so they may start working on

processes for the establishment as early as

next month.”

In a bid to reduce uncertainty at the

inception, the joint venture will be estab-

KEEPING TOP

DOMESTIC INNOVATION

Korea Keeps Top Spot in

Shipbuilding Orders for 5 Months

KOGAS to Design LNG Tank with

Local 3 Big Shipbuilders

U.K.-based provider of data and market

intelligence for the global shipbuilding

and shipping industries, new shipbuild-

ing orders around the globe in the irst

half of this year amounted to 13.28 mil-

lished in the form of a subsidiary, while

KOGAS holds more than 50.1 percent

shares in the company. he three ship-

builders will own a stake according to the

ratio of investment each. KOGAS and the

three shipbuilders are planning to set up

the joint venture in Dec. and to privatize it

by selling its shares to the public stage by

stage when the company becomes a major

player in the market.

Until now, the top three shipbuild-

ers have had to pay royalties of 10 bil-

lion won (US$8.66 million) per vessel to

France-based engineering company GTT,

which monopolizes the market, since

they did not have a tank design technol-

ogy. he three shipbuilders are said to pay

annual royalties worth 300 billion won

lion compensated gross tons (CGTs). he

igure is about 49.2 percent from 26.99

million CGTs a year ago. In the past year,

the global shipbuilding industry saw new

orders halve.

During the cited period, South Ko-

rean shipyards clinched new orders to-

taling 5.92 CGTs. he igure is about the

96.1 percent level of 6.16 million CGTs

tallied a year earlier. Even though the

world’s ship orders commissioned shrank

(US$259.74 million) to GTT in order to

use its technology.

Once the company is jointly founded

by KOGAS, a big buyer in the global gas

market, and the nation’s largest shipbuild-

ers, the global LNG tank design market,

which is currently monopolized by French

companies, is expected to face a great up-

heaval.

An LNG storage tank is a specialized

type of storage tank used for the storage

of natural gas, which is condensed into the

liquid state by chilling it to -162 degrees

Celsius to reduce it to one six-hundredth

of gaseous volume. It is also oten called

the “heart” of an LNG carrier. If the tem-

perature within the tank varies by even

one degree, natural gas will vaporize or the

steel plates will break from freezing. Ac-

cordingly, high technical skills are needed

to design the tank. In 2004, the Ministry of

Trade, Industry and Energy, KOGAS, and

the three shipbuilders started developing a

tank design technology, and succeeded in

developing the KC-1 technology last year

ater 10 years of development.

he domestic LNG tank design tech-

nology will be irst used in Samsung

Heavy Industries’ LNG carriers which will

participate in the U.S. shale gas project

called Sabine Pass from 2017. he tech-

nology to produce LNG tanks will be used

in LNG carriers to be manufactured by

KOGAS and the nation’s top three ship-

builders, saving royalties to overseas com-

panies. Also, the companies are expected

to see proits from royalties by exporting

the technology to overseas shipbuilders.

by Jung Min-hee

LNG tanks installed on a Moss-type LNG carrier.

Shipbuilding

60

to a half, Korea’s shipbuilding industry

took in almost the same level as last year’s.

However, the Chinese shipbuilding

industry became the biggest victim of the

industry downturn.

In the irst half of the year, Chinese

shipbuilders won 2.56 million CGTs, a

ith of the 11.86 million CGTs from the

same period a year ago.

It was largely due to an abrupt fall in

orders for bulk carriers, China’s major

product. In fact, new bulk carrier orders

in the global market in the irst half of

this year amounted to 55 units or 930,000

CGTs, which is a twelth of 585 units or

11.62 million CGTs a year ago.

he irst-half order booking volume

for Japanese shipbuilders also fell by more

than a half to 2.68 million CGTs from

6.04 million CGTs in the irst half of 2014.

Still, they managed to move up to second

spot by overtaking Chinese competitors

Daewoo Shipbuilding & Marine

Engineering President Jung Sung-rip

said late last month that the situation in

the domestic shipbuilding industry are

unlikely to get better soon. “he rapid

growth of the Chinese economy led to an

increase in international cargo volume

and a heyday of 20 years in the industry

HARD TIMES

Future Looking Dim for

Korean Shipbuilding Sector

with a margin of 120,000 CGTs. It is the

irst time in 10 years for Japan to overtake

China in half-year new orders, since Jap-

anese and Chinese shipbuilders won 7.45

million and 4.89 million CGTs, respec-

tively, in the irst half of 2005.

Despite the slump in orders, Korean

shipbuilders have secured the largest

amount of new orders by month to retain

the top spot in the world for ive months

in a row. However, some industry watch-

ers say that it is meaningless to determine

the ranking when global demand for

shipbuilding has dropped by half.

According to Clarkson Research Ser-

vices, the total order volume around the

world in June alone amounted to 48 units,

or 2.09 million CGTs. South Korean

shipbuilders won the largest amount of

new orders by CGT in June with 880,000

CGTs, followed by Chinese shipbuilders

with 450,000 CGTs, and Japanese ship-

but China is losing steam these days,”

he remarked, adding, “he shipbuilding

industry, which is a labor-intensive one,

tends to lose its competitiveness as na-

tional income increases, which means

that the ball will be in the court of China

someday.”

Nowadays, Korean shipbuilders are

going through hard times. his is quite

builders with 16,000 CGTs.

Accordingly, South Korea has main-

tained the leading position for ive

months since Feb. he nation had topped

the list in terms of the number of awarded

orders by month from Oct. to Dec. last

year, but yielded its top position to Japan

in Jan. once.

However, China still maintains its top

place in terms of order backlog. As of the

end of June or early July this year, new

shipbuilding orders in the global mar-

ket decreased to 108.99 million CGTs, a

720,000 CGT decrease from the previous

month. China retains its top position in

terms of order backlog totaling 40.96 mil-

lion CGTs, followed by South Korea with

32.8 million CGTs, and Japan with 19.69

million CGTs, according to the data.

South Korea saw a drop by 1.59 mil-

lion CGTs from 34.39 million CGTs at the

end of Dec. 2014 in terms of order back-

log. However, China saw the decrease by

6.37 million CGTs to 40.96 million CGTs

from 47.33 million CGTs at the end of last

year.

An oicial from the shipbuilding in-

dustry said, “Korea could maintain the

top position only because there were new

shipbuilding orders for large container

carriers this year, in which Korea has

competitiveness in technology. However,

the Korean shipbuilding industry will not

be able to look ahead to a bright future if

new orders drop sharply like this.”

contrary to several years ago, when they

fared pretty well in spite of the global eco-

nomic recession. Hyundai Heavy Indus-

tries’ annual operating proits exceeded 4

trillion won (US$3.5 billion) in 2010 and

2011, but the company recorded more

than 3.2 trillion won (US$2.8 billion) in

operating losses last year to face layofs

and reorganization. his year, Daewoo

Shipbuilding & Marine Engineering’s

losses are forecast to have reached at least

2 trillion won (US$1.7 billion) in the sec-

ond quarter alone, and a number of its

subsidiaries are predicted to be put on the

market.

61

INDUSTRY Shipbuilding

In the 2000s, Korean shipbuilders

were the major beneiciaries of the in-

creasing cargo volume. According to the

Korea Ofshore & Shipbuilding Associ-

ation, their total new building amount

jumped from 6.05 million CGT to 11.11

million CGT between 2000 and 2006, and

then rose to 12 million CGT and 13.56

million CGT in 2008 and 2011, respec-

tively. Last year, however, it dropped to

10.3 million CGT.

he companies have concentrated

on ofshore plants since 2010 in order to

tackle the decrease in the number of mer-

chant ship orders caused by the global

economic crisis of 2008. However, their

lack of experience and excessive compe-

tition resulted in earnings shocks in 2014

and 2015, and low international oil prices

are compounding the matter as of late.

Besides, Chinese shipbuilders are

narrowing the technology gap at a rapid

pace, while Japanese shipbuilders are

beneiting from the weak yen. Although

the top three Korean shipbuilders are

successfully keeping them at bay based

on their technological competitive edge,

smaller Korean companies that mainly

supply bulk carriers and oil tankers are on

the brink of bankruptcy. STX Ofshore &

Shipbuilding, Sungdong Shipbuilding &

Marine Engineering, SPP Shipbuilding,

and many more have failed to repay their

debts and are now under the control of

banks.

Experts point out that the solution

lies in R&D for eco-friendly and high-ef-

iciency vessels. “Smaller companies may

be well advised to share their R&D re-

sources and capabilities so as to improve

their cost competitiveness while cooper-

ating with the industry leaders in order

to supply high-quality components in re-

sponse to the transfer of know-how,” one

of them explained.

Samsung Heavy Industries, Hyundai

Heavy Industries, and Daewoo Shipbuild-

ing & Marine Engineering are striving for

cost reduction and business optimization

based on new technology while compet-

ing for ofshore plants in the global mar-

ket.

SOMETIMES COOPERATION

Major Korea Shipbuilders Working

Hard to Beat Recession

On July 7, Samsung Heavy Industries

received a 337 billion won (US$297 mil-

lion) order for a semi-submersible loat-

ing production system (semi-FPS) from

an American shipowner. It also won of-

shore plant construction contracts worth

6.4 trillion won (US$5.6 billion) in total

back-to-back on June 30 and July 1. It has

already achieved 60 percent of its annual

goal for this year.

In the meantime, Hyundai Heavy In-

dustries and Samsung Heavy Industries

are currently participating in a tender

for Royal Dutch Shell’s Bonga Project in

Nigeria, which is estimated to cost a total

of US$4 billion. Likewise, Daewoo Ship-

building & Marine Engineering and Sam-

sung Heavy Industries are in Chevron’s

project in hailand, and all the three Ko-

rean companies are in ENI’s Mozambique

Area 4 Project.

Hyundai Heavy Industries recently

developed a green LNG carrier with GE,

which is characterized by the use of a gas

turbine engine. his vessel satisies IMO

level 3 environmental regulations with-

out an exhaust gas treatment system, and

thus can save on equipment and operat-

ing costs. Daewoo Shipbuilding & Marine

Engineering recently came up with a ship

demand prediction system utilizing big

data, and is planning to apply big data to

the repair and maintenance of ships in

service.

62

INDUSTRY

SPREADING STEEL

POSCO, Hyundai Steel Expand Overseas Target-ing Emerging Markets

Korea’s top two steel companies,

POSCO and Hyundai Steel, are accelerat-

ing the overseas market invasion. In order

to do so, the two companies are rearrang-

ing the networks, including the expansion

of overseas subsidiaries. In particular,

they are targeting emerging countries in

Southeast Asia and Latin America.

According to industry sources on

July 2, Hyundai Steel, which has started

operation as an integrated company with

Hyundai Hysco on July 1, is now pushing

ahead with an “Emerging Countries Tar-

get Project” by using the global networks

of Hyundai Hysco.

he biggest achievement of Hyundai

Steel latest merger with Hyundai Hysco

is Hysco’s overseas steel service centers

(SSCs) ater the company has produced

even cold-rolled steel products with the

merger in the cold-rolled steel sector with

by Cho Jin-young

Hyundai Hysco in 2013. Synergy efects

from the latest merger will be diferent

depending on how Hyundai Steel will

make use of the SSCs, which are the over-

seas sales outlet of automotive steel. he

centers are the core business of Hysco last

year to such an extent that it accounted

for 67.4 percent of the total sales last year.

Currently, there are 11 SSCs in nine coun-

tries including the U.S., China, and India.

Hyundai Steel is planning to expand the

centers to 13 by next year.

Hyundai Steel is especially targeting

the Mexican and Indian markets among

global markets. Mexico has emerged as a

strategic base for global automakers due

to its low oil prices and interest rates. he

company will open an SSC in the region

in the irst half of next year to aim at all

Latin American markets, and utilize it as

its hub in North America. India is also an-

other major strategic region of the com-

pany, as the steel demand in the country

is expected to rapidly rise due to its gov-

ernment’s aggressive economic stimulus

package.

With POSCO upgrading its subsid-

iaries in strategic countries to its repre-

sentative subsidiaries, the company is

scrambling to restructure overseas sales

networks. POSCO has provided customer

relationship services based on its process-

ing subsidiaries where global automakers

are headquartered. Until now, the com-

pany has established 29 processing irms in

14 countries, including China and Japan.

Since March, its overseas subsidiar-

ies in 11 countries, such as China, Ja-

pan, Australia, Myanmar, and Russia has

sequentially become its representative

subsidiaries. POSCO has also established

production subsidiaries in Indonesia and

Vietnam. hese irms will play a role as an

information hub for POSCO group in the

future.

he group is also positively expand-

ing its overseas technical service centers

(TSCs). he TSCs are a global infrastruc-

ture network that provides services that

customers want when they need. Each is

a kind of small solution center and pro-

vide technical support, quality certiica-

tions, and other servicess. Currently, the

group is running 23 TSCs in China, India,

Southeast Asia, and the Americas.

POSCO will open an additional ive

centers in other countries by this year, in-

creasing the number to 31 by next year.

he move came ater the steel demand in

the global market is expected to be greater

than the domestic market in the future. In

fact, the overseas steel sales of the group

in the irst quarter of this year surpassed

the domestic sales for the irst time.

Meanwhile, POSCO’s cumulative steel

production exceeded 800 million tons last

month, 43 years ater it established its irst

thick plate factory in Pohang and started

business in July 1972. Eight tons of steel

products are enough to build 800 million

units of mid-sized cars and 20,000 units of

300,000 DWT very large crude carriers.

STEEL MERGER

Hyundai Steel Starts Fresh as US$31 Trillion WonSteel Company

Hyundai Steel, which has merged

with Hyundai Hysco, starts with a clean

slate on July 1.

he company said on June 30, “We

have pushed ahead with the merger with

Hyundai Hysco from May, and have now

completed the process. he new integrated

company will be launched on July 1.”

As the merger was completed as

scheduled, Hyundai Steel has become the

world’s ninth largest steel company with

assets and sales amounting to 31 trillion

won (US$27.78 billion) and 20 trillion

won (US$17.91 billion), respectively. he

new company will not hold any celebra-

tion on the day, but will have a proclama-

tion ceremony for its vision in the middle

of July.

Hyundai Steel expects to maximize

the synergy of the merger by unifying its

existing business to produce hot rolled

steel plates from blast furnaces and Hyun-

dai Hysco’s business to manufacture, as-

semble and sell steel sheets. he company

is planning to actively expand its business

areas to lightweight vehicles other than

the existing major products including hot

and cold rolled steel plates. A Hyundai Steel plant in Dangjin county, Chungnam Province.

Steel

64

TAs domestic pharmaceutical companies have started

gaining recognition of their new drug development capabilities

overseas, they are expanding technology exports. As products

newly-released abroad through technology exports are receiving

a positive consumer response not only in emerging countries, in-

cluding Latin American and Southeast Asia, but also in advanced

countries, including the U.S., the companies are expecting to re-

ceive royalties in earnest.

According to industry sources on July 5, new Korean medi-

cines, including Dong-A ST’s Sivextro and Boryung Pharmaceu-

tical Company’s Kanarb, are selling well in newly-entered global

markets.

he sales of Sivextro, an antibiotic targeting super-bacteria de-

veloped by Dong-A ST and technically exported to multinational

pharmaceutical companies, are continuously increasing since

it hit the U.S. market in June last year. he amount of prescrip-

tion of the product in the U.S. has increased from US$880,000

(988.68 million won) in the third quarter last year right ater the

release to US$1.84 million (2.07 billion won) in the irst quarter

this year. he igure is steadily reaching a record high, recording

US$768,000 (862.85 million won) in May alone.

Compared with its competitors, Sivextro is very efective and

easy to take. Also, huge multinational pharmaceutical companies

like MSD and Bayer have sales rights, so the sales of the product

are expected to continuously increase. In March, the company

was licensed to sell the product in Europe, too. Also, the product

is currently undergoing phase three clinical trials in China.

LG Life Sciences’ diabetes treatment Zemiglo, which will be

selling in 120 countries through multinational pharmaceutical

companies Sanoi and Stendhal International, is also expected to

receive royalties in earnest from next year.

Boryung Pharmaceutical’s hypertension pill Kanarb has been

approved for sale in Mexico in Sept. and Ecuador in Dec. last

year, in Honduras in April and Costa Rica in June this year. Bo-

ryung has signed contracts worth nearly US$320 million (359.52

billion won) with 30 countries around the world to export Ka-

narb technology.

Also, other domestic pharmaceutical companies that signed

large export contracts with international pharmaceutical com-

panies including Hanmi Pharmaceutical (novel targeted agents

against cancer and autoimmune disorders), SK Chemical (nex-

t-generation pneumonia vaccine), Daewoong Pharmaceuticals

(new botulinum toxin formula Nabota) and JW Holdings (three-

chamber nutrient infusion), are expected to make proits from

royalties in the global markets.

In the meantime, pharmaceutical companies are complaining

that the government’s policy for lower drug prices is making it

diicult for them to recover their signiicant development costs.

One of their examples is Boryung Pharmaceutical’s Kanarb,

the irst hypertension drug developed by a Korean company. Al-

though it is available at 670 won (US$0.59) per 60 mg, the prices

of similar drugs were between 700 and 900 won four years ago,

when the price of Kanarb was determined. he company went

through six rounds of negotiations with the National Health

Insurance Corporation during the price determination, but the

price was set at a level lower than those of 10-year-old drugs.

A lower price in Korea inevitably results in a lower price

abroad, because the price of an exported drug is based on the do-

mestic price. Boryung Pharmaceutical signed a US$45.8 million

agreement with a Turkish company for the exclusive supply of

Kanarb in late 2011, but the agreement failed to end in a contract

due to matters related to its price.

A new drug price is determined based on, for example, the

weighted average price of the medicine expected to be replaced

with a new one. But the new drug price relects 90 percent of the

weighted average price, unless it is completely new. he prices

of medicine developed abroad and imported by Korea are mini-

mized by the current drug price determination scheme, whereas

relatively generous prices have been guaranteed for generic

drugs, so that Korean companies can have an opportunity. As a

result, the average new drug price in Korea is now 44.4 percent

of the OECD average, and the prices of 74 percent of new drugs

are lower in Korea than in any other OECD member country.

Sivextro, a drug to treat acute bacterial infections, has just been approved by the FDA

after 11 months.

NO SUPPORT FROM GOVERNMENT

Korean Pharmaceutical

Firms Srives to Expand

New Drug Tech Exports

by Jung Min-hee

INDUSTRY Pharmaceuticals

65

INDUSTRY

A much-hyped bidding race for

licenses to run new duty-free stores in

Korea ended on July 10. he license for a

shop in Jeju City went to the Jeju Tourism

Organization. he Korea Customs Service

(KCS) awarded another license to a con-

sortium of Hyundai Development Com-

pany (HDC) and Shilla Duty Free. A third

license was awarded to Hanwha Galleria.

And the fourth license was awarded to

SM Duty Free, a consortium of medium-

sized companies led by Hana Tour.

Competition was ierce during the

bidding process, as these new duty-free

stores in downtown Seoul are expected

to rake in approximately 1 trillion won

(US$868 million) annually due to big de-

mand from Chinese tourists.

Experts say the heated race for the bid

also relects sluggish domestic consump-

tion. Inlation-adjusted private consump-

tion increased only 1.8 percent last year,

marking the lowest growth since 2009.

he local major retailers took the brunt of

GOLDEN TICKET

New Licenses Given to Run

Duty-free Shops in Downtown

Seoul by Marie Kim

the prolonged economic slowdown and

sluggish domestic consumption, which

was also hit by a boom in online shopping

and direct buying from online shopping

malls hosted overseas. Chinese tourists’

seemingly insatiable appetite for shop-

ping has been a rare bright spot in a local

retail sector grappling with sagging sales.

Big Business

he duty-free store business is boom-

ing in Korea. In 2014, the annual sales

of the duty-free market in Korea were

ranked the highest in the world, recording

10 trillion won (US$8.7 billion), which

accounts for 13 percent of the revenues

from all duty-free shops on the planet.

he same year, the sales of all duty-free

stores in Korea increased 22 percent from

the previous year, recording 10 trillion

won, up from 8.3 trillion won (US$7.2

billion). he average annual growth from

the last three years is 14.7 percent.

Overall, duty-free shops in downtown

Seoul prove to be more proitable than

shops in other cities or at transportation

hubs like airports and seaports. Accord-

ing to the Ministry of Strategy and Fi-

nance, in 2014 the turnover of downtown

duty-free stores in Seoul recorded about

5.4 trillion won (US$4.7 billion), marking

a 32.2 percent increase from the previous

year. his is even higher than the previous

year’s 21.6 percent growth. In contrast,

airport duty-free stores recorded a mere

5.9 percent growth, which translates into

2.5 trillion won.

For this reason licenses to operate

duty-free stores in downtown Seoul are

widely seen as a game-changer for those

who are struggling to secure new proit

engines.

Monopoly Duty Problem

Despite anti-monopolistic eforts,

the industry has been dominated by two

market leaders, Lotte Duty Free and Shilla

Duty Free, as their sales account for 80

percent of the all sales of 43 local duty-

free shops around the country.

In 2013, in a bid to prevent monop-

olies, KCS revised customs regulations,

which obliged the Korea Customs Ser-

vice (KCS) to redistribute the licenses of

existing duty-free stores through open

competition every ive years. Before 2013,

the Korea Customs Service (KCS) simply

renewed the licenses of existing operators’

duty-free shops ater a cursory checkup.

Accordingly, the bids for licenses to run

duty-free stores has been open to large

corporations, small and medium enter-

prises (SMEs), and foreign bidders since

2013. he duration of the licenses was

also shortened from 10 years to ive.

Small Duty Struggle

Despite participation since 2013,

SME-owned duty-free stores in Ulsan,

Changwon, Daegu, Daejeon, Suwon,

Incheon, and Cheongju have been rel-

atively poor compared to those run by

major domestic retailers. Although the

overall market size of the duty-free busi-

ness in Korea has been growing, the share

of SME-run duty-free stores has been

The planned duty free shop complex in Yongsan could be the largest in the world. (Photo via Hotel Shilla)

Duty-free Business

66

relatively insigniicant. According to data

compiled by the KCS last year, the sales of

SME-run duty-free stores reached a mere

4.8 percent (amounting to 401 billion

won ) of the total sales of 8.3077 trillion

won (US$7.2141 billion) of all 43 duty-

free stores in Korea.

Among several factors, Industry

watchers pointed out “accessibility to

Chinese tourists” as one of the most

prominent ones. Namely, as Chinese

tourists concentrate in cities like Seoul,

Busan, and Jeju City, SME-owned duty-

free shops missed the fruits of extensive

growth in the industry.

High initial investment costs, high

lease rates and operating costs represent

another hurdle for SME participation. In

the 2014 bidding race, of the four licenses

for duty-free stores at Incheon Airport

reserved for four SMEs, one went to

Charmzone Cosmetics. Charmzone Cos-

metics struggled to pay the requisite ini-

tial six month reservation fee. In the end,

Charmzone’s bid ended in failure and the

company lost its 10 billion won (US$8.7

million) deposit.

Sourcing ability and handling inven-

tory is another challenge for SMEs. he

government announced that it expects an

additional 300 billion won (US$260 mil-

lion) in new investments and the creation

of 4,600 new jobs from the opening of

new duty-free stores in downtown Seoul.

A high lease rate is another barrier for

successful entry by SMEs. For instance,

according to the 2013 record, the annual

rent for a duty-free shop at Incheon air-

port, recorded 615 billion won (US$534

million) at a minimum.

HDC Shilla and Hanwha Galleria

were the winners of the contest. Also,

Hana Tour won the golden ticket compet-

ing with the seven SMEs that had com-

peted for the slot reserved for them. he

KCS evaluated the businesses on factors

like management abilities, tourism infra-

structure, support for smaller companies,

contribution to society, and a very crucial

ive minute presentation a day prior to the

announcement. “hrough accurate due

diligence and fair evaluations, we picked

businesses that can invigorate the duty-

free industry,” said Lee Don-hyun, vice

commissioner of the KCS.

Shilla duty-free paired up with HDC,

another conglomerate, to develop what

they call the world’s biggest downtown

duty-free complex in Yongsan, the rail-

way hub nestled in between key tourist

spots. HDC Shilla plans to open its duty-

free shop at the I’Park Mall with a loor

space of 65,000 square meters (121,000

square feet). It has parking capacity for

400 large tour buses. I’Park Mall is adja-

cent to a KTX express train terminal that

links Seoul with the rest of the country.

he company also has plans to boost

the economy of Yongsan district, collab-

orating with the electronics retail cluster

there to redevelop it as a major destina-

tion for foreign tourists.

he second winner, Hanhwa Galleria,

will open a 9,900 square meter luxury du-

ty-free store in the 63 Building on Yeouido,

one of Seoul’s landmark skyscrapers with

an unobstructed view of Seoul and the

Han River. he building is on a highway

linking Seoul and Incheon International

Airport. It is also close to ive-star hotels

in Yeouido, the Han River park, IFC Mall,

and both Incheon and Gimpo airports,

the main gateways to Korea. “his will be

the best location in terms of accessibility,”

a Galleria oicial said.

Hana Tour, the nation’s biggest travel

agency, unveiled its plans to turn its head-

quarters in Insa-dong into a giant duty-

free outlet. he building is surrounded

by major tourist attractions in Seoul like

Gyeongbokgung Palace.

“We have time-tested skills and know-

how about products that tourists want to

buy and how to attract their attention,” a

Hana Tour oicial said. “We will make full

use of our experience to make it a success-

ful duty-free outlet.”

he licenses at stake will be valid for

ive years under a revised customs reg-

ulation that halved the contract period.

he winning bidders are required to open

their respective stores within six months

ater winning the bid. Hanhwa plans to open a 9,900 square meter luxury duty-free store at 63 Square in Yeouido, at the foot of one of

Seoul’s landmark skyscrapers. (Photo via Hanhwa Galleria)

Hana Tour plans to turn its headquarters in Insa-dong

into a giant duty-free outlet. (Photo via Hana Tour)

67

MAKER MOVEMENT

‘Hardware Startups are Key to

Creative Economy’

by Jung Suk-yee

The Korea Creative Economy Research Network held

an open forum on July 21 and proposed the promotion of the

growth of hardware startups based on manufacturing technol-

ogy for more venture success stories. Lee Min-hwa, head of the

organization, suggested six key strategies to that end: public ed-

ucation for the maker movement; establishment of ecosystems

for startup manufacturers; startup promotion utilizing hard-

ware patents; innovation clusters connecting Yongsan, Guro,

Hongdae, Sungsu, and Yeoksam; a culture of openness led by

small irms; and convergence business foundation based on de-

regulation.

he term “Maker Movement” was coined by Dale Dough-

erty, a co-founder of O’Reilly Media, which is one of the largest

IT publishers in the United States. It can be deined as a social

trend in which people make what they need on their own by

means of less expensive machine tools, 3D printers, and sharing

manufacturing techniques.

“he U.S. government is seeing the maker movement as an

opportunity for startup-based job creation and the promotion

of entrepreneurship, and the Chinese government is also focus-

ing on the growth of hardware startups for a shit from ‘Made

in China’ toward ‘Created in China,’” said Kang Heung-seo, di-

rector at the Korea Foundation for the Advancement of Science

SME

ANGEL INVESTORS

Venture Financing in Korea to be

Led by Private Sector

by Jung Suk-yee

The Financial Services Commission released a plan to

facilitate the inancing of small and venture irms on July 19.

he idea is to boost their self-sustainability by means of private

sector-led investment.

he Korean government has invested a large amount of

public funds for a couple of years in order to enrich the domes-

tic startup ecosystem. As a result, the size of investment in ven-

ture irms and the number of startups have greatly increased.

However, some experts have pointed out that there is still a long

way to go when it comes to the self-suiciency of the ecosystem

and the revitalization of venture capital in more diverse indus-

trial ields.

Venture investors are in favor of the plan, but say that the

government needs to focus more on the qualitative growth of

investment funds for those irms. According to the commission,

the Small and Medium Enterprise Establishment Investment

Association and the Korea Venture Fund raised 80 million won

(US$69,049) for them in 2012, but the amount skyrocketed to

2.5 trillion won (US$2.16 billion) last year. he amount of new

venture investment increased from 1.2 trillion won (US$1.0

billion) to 1.6 trillion won (US$1.4 billion) during the same

period, and the government’s new investment in the sector has

amounted to 1.3 trillion won (US$1.1 billion) since 2013. his

has resulted in an increase in the number of newly-established

venture irms from 74,162 to 84,697 between 2012 and 2014.

Nevertheless, the domestic venture investment ecosystem

still relies heavily on government funds. he government ac-

counted for 27 percent of inancing to that end in 2007, and

the percentage rose to 40.3 percent last year, but investment by

private-sector entities continued to decrease during the period.

“Venture capital irms are concentrating on proitabil-

ity, and less-promising irms are failing to beneit from their

funds,” said an industry insider, adding, “his matter should be

addressed for the government to achieve its goal.” According

to the Korea Venture Capital Association, Korean venture cap-

ital irms recorded an average rate of return of 24.4 percent in

the ICT manufacturing sector last year, easily eclipsed by those

pertaining to games (281.9 percent) and ICT services (123.6

percent).

It is also pointed out that the government has failed to raise

the rate of survival of investees due to its concentration on the

supply of funds. As of 2013, the ratio of startups that remained

in business for three years reached 57.6 percent in the United

States, 55.4 percent in Israel, and just 41.0 percent in Korea.

68

VENTURE TO CHINA

Korean, Chinese Venture

Investors Gathered in Beijing

Beijing’s central district. (Photo via World Property Journal).

by Cho Jin-young

The Small & Medium Business Administration held the

Korea-China Venture Investment Exchange in Beijing from

July 21 to 22 with venture capital irms, venture irms and the

Korea Venture Investment Corporation so as to form cooper-

ation networks with the Chinese venture investment industry.

he conference was a follow-up of the 13th Korean and Chi-

nese Economic Ministers’ Meeting that took place in Beijing on

January 29 this year. Chinese government oicials joined the

conference with leading Chinese enterprises, venture capital

irms, inancial institutions, and venture funds.

In the conference, the participants discussed mutual ex-

change between Korean and Chinese venture capital irms, the

attraction of Chinese capital into Korea, the business of Korean

venture capital irms in China, etc. IR sessions for Korean ven-

ture irms’ penetration of the Chinese market are scheduled to

take place as well, with business meetings with major Chinese

corporations.

An MOU for fund raising purposes was signed there, too.

he MOU will help small Korean irms do business in China by

means of funds jointly raised by Fortune Link and the Korean

government’s Fund of Funds. Fortune Link is the 12th-largest

venture capital irm in China, and it is currently running 30 or

so funds worth approximately 2 trillion won (US$1.7 billion)

in total.

and Creativity. He added, “We need to follow the trend so that

young manufacturers can make innovative attempts with a sec-

ond chance ensured.”

Kim Sung-sup, who is in charge of venture business pol-

icy at the Small & Medium Business Administration (SMBA),

mentioned that spaces for making based on crowd funding are

the key to the promotion of hardware startups. He also said that

Actner Lab, which is the hardware accelerator housed in the

SMBA’s TIPS Town opened in Seoul last week, will be a reli-

able investment platform for hardware startups. “he SMBA

will continue working hard so that a platform combining the

manufacturing infrastructure available at the Creative Econ-

omy Innovation Centers with investment functions can fulill

its purposes,” he continued. REWARDING INNOVATION

Qualcomm Invests US$90 Million

in Korean Start-ups

by Marie Kim

Qualcomm is investing US$90 million for start-ups in

South Korea. On June 30, during an open luncheon meeting at

the Seoul Grand Hyatt Hotel, Paul Jacobs, Qualcomm’s Chair-

man of the board, said, “Given the highly competitive nature

of the industry, Qualcomm is on the lookout for new ideas

providing support for start-ups.” he luncheon meeting was

organized by the American Chamber of Commerce in Korea

(AMCHAM).

Recently, Qualcomm has also invested 3.15 billion won

(US$2.82 million) via a specialized venture capital subsidiary

of Qualcomm into Mango, a local venture that provides rec-

ommendations for local restaurants. Being a son of Qualcomm

founder Irwin Jacobs, Paul Jacobs has been in charge of the

US-Korea Business Council since 2012.

He is on two-day business trip to Korea. During the lun-

cheon, president Jacobs spoke with Amy Jackson, head of the

AMCHAM, on the theme of “innovation, cooperation and

prosperity.” In particular, they discussed the history of Qual-

comm’s innovations and the IT industry in Korea. Jacobs

added, “In order to foster an innovation-friendly business en-

vironment, the roles of government and businesses are critical.”

Jacobs also expressed that he highly valued the current Korean

government policy related to launching creative economy cen-

ters across the country.

Meanwhile, Qualcomm, SK, and the municipal government

of Seoul signed a memorandum of understanding to spread the

use of “keeper phones.” Designed to counter the rising numbers

of missing seniors with dementia, the phone enables family and

guardians to know the real-time location of seniors with de-

mentia. he phone also sends alert messages to guardians when

seniors stray away from safe areas.

SME Startups

69

SME

WORLD CLASS 300

Korea’s 30 Global ‘Hidden Cham-

pion’ Candidates Selected

by Oh Seung-mock

The Ministry of Trade, Industry & Energy (MOTIE) and

the Small and Medium Business Administration (SMBA) said

on June 30 that they have jointly selected 30 small and medi-

um-sized enterprises (SMEs) eligible for support in accordance

with the “2015 World Class 300 & Global Businesses Nurturing

Project.”

Following the “Korean Hidden Champion Nurturing Pol-

icy” announced last Oct., the “World Class 300” project and the

“Global Businesses Nurturing Project,” which had been sepa-

rately administered by the MOTIE and the SMBA respectively,

have been uniied. he two government agencies made the irst

co-selection of high potential businesses to be supported this

year.

he selected businesses are: EAGON Industrial Co., Kyung-

In Synthetic Corporation, Nepes, Daeyang Electric Co., DK-

loc, MegaGen Implant Co., Vatech, Boryung Pharmaceutical

Company, Meta Biomed, Segos, SSangYong Materials, Cell

Biotech, NUC, Youngwoo Co., Ltd., Autogen, UNO & COM-

PANY, Wonic QnC, Unitech, Yushin Precision Industrial, EO

Techniques, NK, Zinitix, KC Corporation, KTE, TeleChips,

Paru, Hanla IMS, Haesung Optics, and Fine Inc.

he group of the selected companies this year consists of

11 mid-sized businesses and 19 SMEs. hey have achieved an

annual average of US$106.4 billion in sales and an average of

US$59 million in exports with its proportion of average 56.4

percent of the total sales. heir average intensity of research and

development was 4.17 percent. Among them, 14 companies

(47 percent) are located in the Seoul metropolitan area such as

Seoul City, Gyunggi Province and Inchoen City, while 16 com-

panies (53 percent) are located in non-metropolitan area. None

of the businesses were from Gangwon Province or Jeju Island.

he 30 companies will be supported for 10 years, starting

ITS RAINING FUNDING

Crowd-funding Act Passed by Na-

tional Assembly

by Jung Suk-yee

The amendment of the Capital Market and Financial In-

vestment Business Act, known as the Crowd-funding Act, was

passed by a plenary session of the National assembly on July

6, along with 60 other bills, including an amendment of the

Financial Institution Governance Structure Law and one that

allows private equity funds to be set up on a post-registration

basis instead of on a prior-approval basis.

he Crowd-funding Act, advocated by both the govern-

ment and the ruling party as a part of their economic recovery

plans, was passed ater almost two years.

he passage of the amended Crowd-funding Act is ex-

pected to be a boon for venture irms and startups, as online

investment intermediaries are allowed to raise funds via online

funding portals and the general public, and the irms can have

easier access to each other in the investment sphere.

In the meantime, the amendment of the Financial Institu-

tion Governance Structure Law is to expand the examination

of the qualiication of major shareholders to cover every type of

inancial irm, including insurers and non-banking companies,

as well as commercial and savings banks.

he amendment of the Fair Transactions in Subcontracting

Act passed at this time stipulates that not only small and me-

dium enterprises but also larger companies with annual sales of

less than 300 billion won (US$264 million) can be protected by

the law, as long as they are not included in the group of compa-

nies subject to the ban on cross-shareholding and are in busi-

ness relations with those in the group on a consignment basis.

this year, to grow to world class hidden champions.

Cho Jong-rae, director general of the High Potential Enter-

prises Bureau at the SMBA, said that he will maximize the syn-

ergy efects by preventing duplicated support and enhancing

the efectiveness of the project once the companies have been

selected irst this year.

Startups

70

MICE

ISOFAR 2015

ISOFAR 2015 Goesan Expo Starts

Attracting Buyers at Home, Abroad

Workers of the ISOFAR 2015 Goesan International Organic Expo + Industry Fair Organizing Committee talk with the potential participants in the event.

by Jung Min-hee

The ISOFAR 2015 Goesan International Organic Expo +

Industry Fair Organizing Committee (Secretary General Huh

Kyeong-jae) is recruiting buyers at home and abroad that want to

be part of the organic industry exhibition halls during the expo

from July 20 to Sept. 17.

In order to promote the organic industry and tap into overseas

markets, the expo organization committee will run organic indus-

try exhibition halls in which 250 companies from 25 countries

will participate. Buyers will be able to have consultations on ex-

ports and to exchange information with participating companies.

hose who want to join the expo, such as distribution compa-

nies, institutions, and organizations related to the organic indus-

try, can submit application forms online by clicking the “buyer

participation” menu on the oicial website of the ISOFAR 2015

Goesan International Organic Expo (www.2015organic-expo.

kr), or on the “buyer participation application” menu on the of-

icial website of the Chungcheongbuk-do provincial government

(www.cb21.net).

Ater completing the application for participation, one should

bring a buyer invitation card, which is distributed by the organi-

zation committee, and a business card to conirm identity at a

buyer registration booth at the main gate of the venue. Buyers will

be given a pass and free admission and will be able to take part in

special buyer activities.

Huh Kyeong-jae, secretary general of the expo organization

committee, said, “In a bid to attract more competent buyers, we

will distribute 15,000 invitation cards to irms, institutions, and

organizations at home and abroad, and attract more than 620

buyers. In particular, we are also planning to recruit foreign buy-

ers through the International Federation of Organic Agriculture

Movements Asia, which have well-established networks, AT Ko-

rea Agro-Fisheries & Food Trade Corporation, and the relevant

government departments of North Chungcheong Province.”

Meanwhile, the ISOFAR 2015 Goesan International Organic

Expo + Industry Fair will take place in the Organic Expo Farm

in Goesan-gun, or Goesan County, for 24 days, from Sept. 18 to

Oct. 11, 2015, with the theme of “Organic Life – Science Meets

the Public.” he event will be co-hosted by 3 organizations: North

Chungcheong Province, Goesan County, and the International

Society of Organic Agriculture Research (ISOFAR).

72

2015 HALAL EXPO

High-level Halal Personnel to Meet for Heavy,

Harmonious Discussions

According to the organizing

committee of the 2015 Halal Expo Ko-

rea (Chairman, Chung Yong-chil, for-

mer U.A.E. ambassador), personnel of

the Standards and Metrology Institute

(SMIC), an ailiated organization of the

Organization of Islamic Cooperation

(OIC), authorities of Turkey’s GIM-

DES, Malaysia’s JAKIM, Indonesia’s

LPPOM-MUI, members of the Gulf

Halal Center in the U.A.E., and halal cer-

tiication organization personnel from 10

countries are expected to attend.

Based in Istanbul, the SMIC is an or-

ganization devoted to developing stan-

dards that are commonly used in 32 Is-

lamic countries including Saudi Arabia,

Turkey, Iran, the U.A.E., and Malaysia.

he ailiated research institute notiied

the standards for halal food in 2011,

which are likely to become international,

as the U.A.E. and the Philippines recently

accepted them. he Vice Secretary who

will lead the delegation to the event is

Loti Ben Said. Originally from Tunisia,

Said is known as an authority in the ield

of food quality management.

From Aug. 7 to 8, staf from the In-

ternational Halal Certiication will par-

ticipate in the International Halal Certi-

ication Authorities Conference, either

as presenters or discussants. he Interna-

tional Halal CB Conference consists of 5

sessions comprised of a brieing on “New

Trends in the Global Halal Certiication,”

a debate on “Strategies of Developing

Halal Certiication in Korea,” a presenta-

tion on “the Future of International Halal

Standards,” “Introduction to the Turkish

GIMDES Certiication,” and a session for

signing MOUs or MRAs among local and

foreign participants. With the participa-

tion of academic and business person-

nel from home and abroad, the event is

expected to be a lively venue for the ex-

change of ideas on the latest halal issues.

he International Halal Certiication

Authorities Conference is hosted by the

Korea Food Research Institute and jointly

organized by the Korea Institute of Halal

industry and Korea Halal Cooperative

Organization. he event is also sponsored

by the Korea International Trade Associ-

ation and the Korea Muslim Federation.

Appointed honorable advisors for the 2015 Halal Expo.

by Marie Kim

1. Conference: Present & Future of Halal Certiication and Certiication Policy of Korea2. Bia Matching: Arrangement for face-to-face business meeting attended by overseas buyers, corporations, institutions and Commercial Attaches of OIC countries to Korea3. Job Counseling & Seminar: Job counseling made by relevant companies from Middle East & ASEAN countries Seminar attended by job counseling companies, relevant

organizations of Korean Government4. Training for Halal Certiication: Training for general staf and expert on Halal Certiication

For more information, contact the HALAL EXPO KOREA Organizing Committee:Address: MOI Building 3F, 13, Yangjae-Daero 145-Gil, Gangdong-Gu, Seoul, Korea, 134-830Phone: +82 70 8824 1000Fax: +82 2 790 1810Email: expo@halalexpokorea.co.krWebsite: www.halalexpo.co.kr

Contact

Current

Events

Overview of the 2015 Halal Expo

Title HALAL EXPO KOREA 2015

Date Aug. 7 (Fri.) - 9 (Sun.), 2015

Venue COEX Hall C, Seoul, South Korea

Organizer Halal Expo Korea Organizing Committee

Management Korea Food Research Institute, Korea Muslim Business Community, World Expo Co., Ltd.

Exhibition Proile halal food and beverage, health food, raw material medicines, beauty & cosmetics, logistics, inance, Fashion and other daily products, etc.

MICE Expositions

73

at Soongsil University. He added, “But the

newly-developed e-skin has a very simple

structure. So, I think that it will be possi-

ble to make lexible products at ultra-low

cost.”

he study was funded by Korea’s Min-

istry of Science, ICT and Future Planning

under the Global Frontier Project, and it

is going to be featured as a cover article in

the upcoming issue of Advanced Materi-

als, a weekly scientiic journal covering

materials science.

TRUTH IN LIGHT

ETRI Advances Ultra-fast Optical Computer Age

The age has come to exchange data

between computer chips using light. Ko-

rean scientists have succeeded in develop-

ing a single-chip optical transceiver based

on general silicon semiconductors.

he Electronics and Telecommuni-

cations Research Institute (ETRI) an-

nounced on July 8 that it has developed a

silicon chip that can be used to make a fu-

turistic computer that exchanges data us-

ing light rather than electronic signal. he

technology that builds “roads of light”

in computers to communicate between

or within chips using light is called “sil-

icon photonics.” It will bring innovative

changes in future data computing and

communications.

he single-chip optical transceiver

developed by ETRI is its own platform

technology that can add the function of

optical inputs and outputs (I/Os) in sili-

con electronic circuits.

ETRI said that the technology sig-

by Cho Jin-young

STATIC IMAGES

Tech to Maintain LCD Screens without Data Signals

Korean research team has success-

fully developed a tech to make a memo-

ry-type liquid crystal display (LCD) that

can maintain a screen without sending

data signals.

On July 23, Professor Kim Jae-hoon

from Hanyang University and Professor

Kwak Jin-seok from Yeungnam Univer-

sity announced that their research team

succeeded in developing a memory-type

LCD that can keep its screen going, even

when data signals discontinue, using the

phenomenon that the surface of liquid

crystals slides easily. he research team

said that it will be possible to irst use the

research indings in slowly-moving LCDs

like those used in e-books, LED bill-

boards, and e-signs for prices or menus.

In that case, they said that the newly-de-

veloped tech could reduce power con-

sumption by nearly 100 percent.

Professor Kwak noted, “I think that

our study will be able to be used in the

development of memory-type optical

elements that can be utilized in optical

communications, dynamic focal spot

changing lens, cameras, scanners, print-

ers, polarization sensors, and polarization

elements, in addition to slowly-moving

LCDs.”

he research indings were irst pub-

lished online on June 23 by Scientiic Re-

ports, a scientiic journal published by the

Nature Publishing Group.

by Cho Jin-young

ANDROID SKIN

Making Electronic Skin Capable of Detecting Harmful Gases

A Korean research team has suc-

ceeded in developing a tech to make arti-

icial electronic skin that can detect tem-

perature, humidity, and smell.

On July 16, a research team at the

Center for Advanced Sot Electronics suc-

cessfully developed a technology to make

electronic skin capable of detecting dif-

ferent kinds of harmful gases and organic

solvents, which human skin cannot do.

he e-skin was made using the prop-

erty of electrical capacity, an ability of

objects to store electricity. Ater synthe-

sizing a carbon nanotube iber with high

electrical conductivity and elasticity, the

research team made a wearable piezoelec-

tric element using the synthesized ma-

terial. he element is lexible and stretch-

able like human skin, and it is tactile and

olfactory, unlike existing tactile-oriented

e-skin. he newly-developed e-skin is ex-

pected to be widely used to make wear-

able medical devices, sensory displays,

and multi-functional robot skin.

“In the past, very complex nanoma-

terials and structures were used, and dif-

ferent materials were used for tactile and

olfactory functions. So, output signals

were inevitably mixed,” explained Kim

Do-hwan, professor of the Department of

Organic Materials and Fiber Engineering

Experimental artiicial skin that can detect tempera-

ture and other changes to its environment.

by Cho Jin-young

SCIENCE

74

SUPERCOMPUTER FORUM

Korea to Make Ul-tra-High-Performance Supercomputer

An “Ultra-high-performance Com-

puting Development Forum” was recently

established, composed of industry experts

and researchers in the ield of supercom-

puters led by the Korea Advanced Insti-

tute of Science and Technology (KAIST),

according to sources in the Ministry of

Science, ICT and Future Planning (MSIP)

and related academic circles on July 5.

he MSIP is also reportedly conduct-

ing a preliminary feasibility study related

to the development of original technology

of supercomputers as part of Super IT Ko-

rea 2020. he public and private sectors

reached the conclusion that it is necessary

to localize a supercomputer.

In the past, supercomputers were uti-

lized throughout the ields of cutting-edge

technology, including basic science that

requires the fast and accurate calculation

of a large number of igures. Or, they were

used to process a large amount of infor-

mation in a given time.

In recent years, supercomputers are

being used in the design and simulation

of cars, semiconductors, ships, and air-

crat. hey are also utilized in handling

large-scale business problems like real-

time stock analysis or management con-

sulting.

Hyundai Motor reportedly succeeded

in cutting the costs required to make pi-

lot cars nearly in half through car crash

simulations using a supercomputer. In

addition, only 1.5 days is necessary for a

supercomputer to simulate car crashes,

although about a month is needed for a by Jung Min-hee

niicantly increases integration with elec-

tronic integrated circuits and allows the

practical transmission and reception of

optical data between chips. he technol-

ogy can be used in a wide range of indus-

tries, including high performance com-

puting (HPC), central processing units

(CPU), memory, 3D integrated circuits

(3D IC), and optical components in the

future.

he technology can increase exist-

ing electrical data speeds of 1 to 2 Gbps

per line by tens of times. By realizing the

speed of optical communications under a

normal computer environment regardless

of transmission distance, it can add 10 to

40 Gbps of speed per channel, fast enough

to transmit a 4GB full HD movie in 0.8

seconds.

ETRI also demonstrated a prototype

that realizes 20 Gbps low-power chip-

level optical interconnects between sili-

con chips.

he research institute said that it

is possible to mass produce a relatively

low-priced wafer and rapidly improve

the data I/O speeds and bandwidth if the

technology is being used in future com-

puter chips, including computer CPUs

and memory, as a platform in the future.

Accordingly, it will have a great inluence

on the commercialization of single elec-

tronic/optical integrated chips.

Also, a single high-performance chip

with optical transceiver elements based

on silicon will minimize size, lower the

price, and decrease power consumption.

herefore, it is easy to commercialize the

technology in optical communication

parts, mobile devices, sensors, and dis-

play parts in the future, expecting a great

ripple efect, said ETRI.

Employees at Lawrence Livermore National Labora-

tory work on a high-performance computer. (Photo via

Lawrence Livermore National Laboratory)

large computer. As a result, industry an-

alysts are saying that it is possible to re-

duce the time needed for car development

from ive to three years.

Amid an increase in the utilization

of supercomputers, the Supercomputing

Center of the Korea Institute of Science

and Technology Information has intro-

duced a new system every ive years since

1988, and it is currently operating the

fourth one. Private enterprises like Sam-

sung SDS and Hyundai Motor, mobile

carriers, and inancial institutions are also

using supercomputers, but most of them

were exported from the U.S. or China.

herefore, some in academic circles

are skeptical of the MSIP and KAIST’s

eforts to develop a local supercomputer.

he skepticism is due to the fact that the

gap between latecomer Korea and domi-

nant players like the U.S., China, and Ja-

pan in supercomputer technology is too

wide.

In response, an oicial at KAIST

pointed out, “We can decrease the gap

with major advanced countries in the de-

velopment of original technology, since it

is possible for new technology to cultivate

new markets and its application to new

areas.” he oicial explained that Sam-

sung Electronics also entered the mobile

phone market led by Motorola and Nokia

in the early 1990s in spite of strong op-

position, but Samsung is currently lead-

ing the global cell phone market together

with Apple thanks to its tremendous ef-

forts.

he associate at KAIST said,

“Tianhe-2, the fastest supercomputer de-

veloped by China’s National University of

Defense Technology, consumes as much

power as that needed for operating two

nuclear power plants,” adding, “As our na-

tion is a latecomer, the odds will be in our

favor if we start to approach the problem

of power consumption irst, for which we

have a competitive advantage, and then

focus on the development of a supercom-

puter capable of processing other applica-

tions, diferent from existing ones.”

SCIENCE New Tech

75

UNEXPECTED SALE

Korea Grand Sale toKick Off in August

During the trade and investment

promotion meeting presided by Presi-

dent Park Geun-hye on July 9, the gov-

ernment announced to hold the annual

“Korea Grand Sale” event, which usually

takes place during winter, in Aug. this

year. Also, it said that group tourists from

China, Vietnam, and the Philippines will

be exempted from their US$15 (17,316

won) per person visa application fee until

the end of Sept.

Meanwhile, participating companies

will ofer special sale events, such as buy-

one-get-one-free deals, buy-two-get-one-

free deals, and discounts of more than 50

percent, chances to receive a selection of

attractive gits, and early bird promotions

that provide extra beneits to foreign vis-

itors who apply for the event. Packages

will be ofered that bring together various

industries including airlines, accommo-

dations, food and beverages, and beauty,

and combination products between cul-

ture and arts and shopping tours. he

event’s base center will coordinate large

oline promotions such as foreign tourist

welcome week, giveaway events, and cul-

tural experience events.

he government will encourage

participation from the governments of

Seoul, Busan, and Jeju to encourage par-

ticipation in the event. he government

will promote the Korea Grand Sale at

government exchange events and public

organizations’ international events, and

hold K-pop and Korean Wave events for

by Cho Jin-young

foreign tourists, pushing national promo-

tional campaigns to achieve good results.

he Korea Grand Sale is an event that

not only ofers good shopping opportuni-

ties to foreign visitors, but also enhances

their travel experience in Korea by inte-

grating shopping, the Korean Wave, and

tourism. he event introduces a wide va-

riety of great Korean products and ofers

diverse cultural experience programs and

other beneits. he Korea Grand Sale will

take place across Korea from Aug. 21 to

Oct. 31, 2015.

Four out of 10 South Korean

20-somethings have had cosmetic sur-

gery or treatments, a study of the Uni-

vTomorrow Research Laboratory for the

Twenties (UTRLT) showed.

A total of 459 South Korean people

in their 20s who had ever considered

any cosmetic surgery participated in the

study, and 38.1 percent of them had had

the experience of plastic surgery. Out of

those, 46.9 percent had had was opera-

tions, while 44.0 percent of them had had

treatments.

he most common reason for having

had cosmetic surgery or treatments was

“envying others’ appearance,” which ac-

counted for 36.3 percent of those that had

cosmetic surgery. Another 18.7 percent of

those had cosmetic surgery or treatment

Before and after photos of an unidentiied Korean “ce-

lebrity” showing the plastic surgery that she received.

APPEARANCE IS EVERYTHING

40% of South Korean 20-somethings Have Had Cosmetic Surgery

by Oh Seung-mock

PREMIUM EXPERIENCE

Hotel Coffee in Seoul Most Expensive in World

by Jung Min-hee

because of “others’ suggestions.”

Out of the women, 17.4 percent had

plastic surgery because of a “discrimina-

tion against appearance,” while 16.3 per-

cent of men had plastic surgery because

they “found dating diicult.”

A full 60.0 percent of those who had

cosmetic surgery or treatments said they

were satisied with the result. In more de-

tail, 72.6 percent of those said the surgery

or treatment improved their conidence;

51.4 percent of them said that it was help-

ful for their relationships; 48.6 percent

said that it was helpful for their romantic

relationships; and 44.6 percent of them

said it was helpful in their job search.

Sixty-three percent of the partici-

pants considering cosmetic surgery or

treatments said pointed out their “eyes”

as their favorite choice for the surgery

or treatment, while 61.3 percent selected

“nose,” and 38.0 percent chose “chin.”

Ho Young-sung, senior researcher at

the UTRLT who conducted the research,

said that it was surprising that envy was

the most common reason for cosmetic

surgery than “inevitable reasons” such as

a job search or relationships. he research

shows that the country’s current culture is

very much emphasizing appearance, he

said.

Hotels.com said on June 29 that

Seoul topped the price list of a cup of cof-

fee in the hotel at 17,700 won (including

CULTURE

76

PYEONGCHANG

ACCOMMODATIONS

E-Land Completes French-themed Kensington Flora Hotel Renovation

by Jung Min-hee

A renovated room at the Kensington Flora Hotel in

Pyeongchang, South Korea.

tax and service charge). he global hotel

reservation site made a research on prices

of burger sets, cofee, house wine and club

sandwiches targeting 30 three-to-ive star

hotels in 28 countries.

Tokyo ranked second at 9,420 won

in the cofee price, followed by Beijing

(8,510 won), Hong Kong (8,190 won) and

Taipei (7,580 won), showing the top ive

expensive t cities are all in northeast Asia

Columbia’s Bogota was cheapest at

1,740 won, followed by Rio de Janeiro

(2,280 won), Mexico City (2,740 won)

and Madrid (3,690 won).

House wine prices were highest in

Singapore at 15,480 won, followed by

Seoul (15,080 won).

Seoul ranked 14th in the prices of

burger sets at 24,250 won. Geneva topped

the list at 41,870 won, followed by Oslo

(34,540 won), Hong Kong (33,870 won),

Paris (32,820 won) and London (28,520

won).

Geneva also topped the list of club

sandwiches at 33,890 won, followed by

Paris (27,020 won), Stockholm (25,300

won), London (24,460 won), Hong Kong

(23,370 won), Oslo (22,290 won) and

Seoul (22,270 won).

Seoul ranked 6th for the combined

prices of the four items, Geneva was high-

est at 96,050 won, followed by Paris (80,430

won), Hong Kong (79,020 won), Oslo

(75,790 won), London (72,500 won).

THICK, JUICY DELICIOUSNESS

Jjawang Selling Like Hot-cakes Made of Ramen

by Marie Kim

The E-Land Group announced on

July 22 that it has completed part of the

room renovations in its Pyeongchang

Kensington Flora Hotel in Gangwon Prov-

ince and is holding an Olympic-themed

special exhibition at the hotel.

Kensington Flora Hotel, which has

Korea’s biggest French-themed garden,

has renovated and opened 87 rooms with

a French theme, and will complete the ren-

ovation of the remaining 306 rooms by the

end of Sept.

In celebration of the room renovations

of the hotel, it will hold a special exhibition

that allows visitors to see the history of the

Olympic Games from the London Olym-

pics in 1908 to the Sochi Winter Olympics

last year, and also a “Revenues D’ailleurs”

exhibition.

In the special exhibition, there is a col-

lection of 100 monumental Olympic items,

such as two Argentine gold medals won at

the Olympic Games in men’s soccer, Mi-

chael Phelps’ swim cap that he wore when

he won eight gold medals at the Beijing

Summer Olympics, and Usain Bolt’s spike

shoes at the Olympic trials in 2012.

In celebration of the 130 years of dip-

lomatic relations between Paris and Seoul

this year, the Revenues D’ailleurs exhibi-

tion, which is jointly arranged by French

cartoonist Samir Dahmani and Artist Yoon

Bo-kyung, will also be held from July 25 to

Nov. 30.

Moreover, Kensington Flora Hotel will

ofer a “Celebrate All of Us” package, which

provides a superior room and French

breakfast bufet tickets, for the price of

159,000 won (US$138), including tax and

service fees, from Aug. 24 to Sept. 24. he

irst ive customers that make reservations

by the end of this month will be ofered

Kensington’s signature scented Soohyang

candle as a git.

For further information, visit the oi-

cial website or call +82-33-330-5000.

Nongshim’s newly-rolled-out in-

stant “jajang” ramen, named Jjawang,

chalked up 10 billion won (US$8.7 mil-

lion) of sales in May. Jajang is the name

of a black savory bean sauce that is used

in a popular Chinese Korean dish called

“jajangmyeon.” Since its launch on April

20, the product has been selling extremely

well, marking a stark contrast against the

steadily declining sales of general ramen.

Jjawang has been receiving praise for its

thick chewy noodles and rich lavor.

As Jjawang gets more popular in all

channels ranging from giant retail out-

lets to convenience stores, the market

share of Nongshim also increases. he

market share of Nongshim in March was

recorded at 59.1 percent, but in May the

share reached 61.5 percent.

According to a spokesman for Nong-

shim, the company focused on recreating

the traditional taste of jajangmyeon rather

than creating a whole new taste.

Nongshim expects that Jjawang will

join the 100 billion won club in the ra-

men market. Only four instant noodle

products are members of that club - Shin

Ramyun, Neoguri, Jjapaghetti, and An-

sungtangmyun.

As Jjawang changed the landscape of

the instant noodle market, second market

leader Ottogi recently launched its own

version of premium jajang ramen named

“Jin Jjajang. Jin Jjajang has the taste of ja-

jang ramen cooked over a ire. Made with

pork and ginger, the ramen has a savory

taste. It diferentiates itself from Jjawang

by using a liquid base for the soup rather

than powder, to keep a deeper lavor. Jin

Jjajang ofers large-sized beef-favored

lakes that add the taste.

he price of Jin Jjajang is 1,300 won

(US$1.13) per pack, 200 won cheaper

than Jjawang, which is priced at 1,500

won (US$1.30).

CULTURE Life Style

77

CULTURE

Rent Corea is a subsidiary of the Taeyoung Real Estate

Group specializing in the sales and rent of luxurious apartments

and villas, targeting foreign employees, researchers, and busi-

nessmen living in Seoul.

he particular areas of the city that the company is focusing

on are Pyeongchang-dong, Hannam-dong, Itaewon-dong and

Yonhee-dong in the Gangbuk area, as well as the entire Gang-

nam area.

he company was established in 1998, and its headquarters

is at Seongbuk-dong in Seoul. It also has nine branches spread

throughout the city.

he company provides additional services for its foreign

clients such as assistance for daily living with property manage-

ment, hospitals, schools, telecommunications, insurance, bank-

ing, and legal services so that their clients can focus on their

jobs.

he company says it is aimed at bridging foreign capitals and

funds to the South Korean real estate market, as well as South

Korean real estate businesses to the overseas market.

RENT KOREA

Providing 17 Years Services of

Finding Accommodations for Foreigners

• Regional residential environment information• Settlement viewing and selection• Business oice or building search• Entry residential and oice building decisions• Review of entire property-related documents• Buying and selling real estate lease agreements• Facility maintenance and repair• Use expiration cost settlement services• Domestic and international business assistance• Terms and secondary health care facilities• Foreign secondary school selection• Legal Services

The main services of Rent Corea include

More information about the company is at its website, “rent-

corea.com”. he company can be contacted via its email address,

hello@rentcorea.com. he phone number of the company’s of-

ice in the Gangbuk area is: 02-730-0001; the oice in the Gang-

nam area is contactable via 02-536-0001.

by Jung Suk-yee

Housing for Foreign Expats

78